1 N.Y.2d 482 | NY | 1956
Lead Opinion
Irving Skupack died in October of 1953, survived by his wife, a son and a daughter. His will, admitted to probate a month later, contained an absolute legacy of $2,500 to his wife and gave the residue of his estate to a trustee (also named as executor) “to be divided into three equal parts ”. One part was placed in trust for the benefit of his wife for life; upon her death, it was provided, the trust was to terminate and the principal was to be divided between the other trusts. The other two parts were placed in separate trusts for the benefit of the two children, each was to receive the income until his majority, and at that time the trusts were to end and each child was to receive the principal outright. The property left by the testator consisted primarily of six corporations which he wholly owned, two engaged in manufacturing, the other four in the real estate business, their gross assets totaling about $750,000.
We must decide two questions: first, whether the widow is entitled, under section 18 of the Decedent Estate Law, to elect to take her intestate share of the estate and, second, whether the executor-trustee may exercise plenary managerial control over the property held by the real estate corporations. We answer both in the negative, and, since we agree with the Appellate Division’s treatment and disposition of the second question, relating to the executor-trustee’s control (see, also, dissenting opinion, pp. 498-499), we discuss only the first, the wife’s right of election under the statute.
So far as it is pertinent, section 18 grants to a surviving spouse the right to elect to take his or her share of the estate as in intestacy, subject to the following limitation and condition:
“(d) Where the will contains an absolute legacy or devise, whether general or specific, to the surviving spouse, of or In the excess of the sum of twenty-five hundred dollars and also a provision for a trust for his or her benefit for life of a principal equal to or more than the excess between said legacy or devise and his or her intestate share, no right of election whatever shall exist in the surviving spouse.”
It is the widow’s claim that she has a right of election because the trust in her favor is “ inadequate ” and “ illusory.” Her reasoning, briefly stated, is this. As a minority holder in closed
That decision rests upon an unwarranted expansion of section 18 and the legislative purpose underlying its enactment. We have more than once declared that the statute’s purpose is to assure to a surviving husband or wife the right to claim his or her full intestate share, in spite of any will, ‘ ‘ unless the instrument should provide substantial equivalents. A testamentary gift of an equal sum * * * or a gift in trust of such a sum for the use of the surviving spouse for life ” constitutes such an equivalent. (Matter of Wittner, 301 N. Y. 461, 465; Matter of Byrnes, 260 N. Y. 465, 470, 474, reargument denied 261 N. Y. 623.)
Contrary to respondent’s argument, the statute was not, and rationally could not have been, designed to guarantee any particular income or any particular standard of living to the surviving wife. The widow must accept her share of what her husband owned. If he died possessed of nothing, the widow, of course, would receive nothing. Similarly, if the husband died possessed of unproductive, unsaleable real estate, throwing off little, if any, income, the widow could not complain when she received one third of it outright or a legacy of $2,500 plus the one third in trust. Her financial position may turn out to be disadvantageous, and cause for regret, but, unfortunately for her, section 18 was not intended to assure her more than one third of what her husband possessed when he died.
By bequeathing to respondent the sum of $2,500 outright and also a life interest in a trust of one third of the residue of the estate, the testator provided her with the requisite equivalent for her intestate share and fully complied with the demands of the statute. The possibility which she fears, that her income may be impaired by hostile majority owners, results from the character of the property left by her husband rather than from
While there is a danger that the widow will not receive an income from her trust proportionate to that received by her husband during his life, that consequence flows from the character of his property rather than from any failure on his part to comply with the provisions of law enacted for the benefit of the surviving spouse. If she were to take her intestate share, that is, a third of the stock outright, she would still have only a minority interest in each of these small corporations and the income would still be dependent upon decisions of directors selected by the majority stockholders. In such a case, she would, it is true, possess the right to sell her one-third share, but this right is seriously impaired, if not effectively destroyed, by the practical difficulty attendant upon obtaining a fair-price buyer for a minority interest in a closely held corporation such as we have here.
We agree that the right to elect against the will is not barred where the trust, although in form complying with section 18, is, in fact, illusory or not the substantial equivalent of the intestate share. But, as the case before us illustrates, “ illusory ” has not the same meaning as “possibly unproductive of real income.” The decisions in which a testamentary trust to the surviving spouse has been branded as ‘ ‘ illusory ’ ’ have either involved a duration shorter than the life of such spouse (Matter of Byrnes, supra, 260 N. Y. 465) or a corpus subject to invasion and reduction of amount. (Matter of Wittner, supra, 301 N. Y. 461; Matter of Matthews, 255 App. Div. 80, affd. 279 N. Y. 732; Matter of Schrauth, 249 App. Div. 846.)
This is not to say, though, that a testator, who dies possessed of both income producing and non-income producing property, may so divide his estate as to bequeath to his wife only the unproductive portion. When we are confronted with such a case, we shall deal with it. Nor does our deci
The order of the Appellate Division should he modified, with costs to all parties appearing separately and filing separate briefs, payable out of the estate, and the case remitted to the Surrogate’s Court for proceedings not inconsistent with this opinion.
Dissenting Opinion
(dissenting). Irving Shupack (hereinafter called the “ testator ”) died on October 28, 1953, survived by his widow and two children—Harold and Janet. He left a will which, on November 24, 1953, was duly admitted to probate by the Surrogate’s Court of Queens County. One Edward Morrison (hereinafter called “Morrison”) was named executor and trustee. Under the terms of the will, testator bequeathed to the widow the sum of $2,500 outright. The balance of his property was directed to be given to Morrison (as trustee), and to be divided into three equal parts, each part to constitute the principal of a separate trust — Trust A for the widow, Trust B for Harold, a son, and Trust C for Janet, a daughter. Under Trusts B and C, the children Harold and Janet are each to receive the income therefrom until the respective beneficiary attains majority, at which time the respective trust is to end and the principal is to be turned over to such respective beneficiary. Under Trust A, the widow, “ for the remainder of her natural life ’ ’, is to receive the income therefrom, and, upon her death, such trust is to end and the principal is to be turned over and added to Trusts A and B, or to Harold and Janet (in the event their trusts have at that time terminated because of the attainment of their majorities). Other contingencies were provided for, but they are not material here.
The bulk of testator’s assets consisted of the wholly owned stock in six corporations, one of which had been formed by
It is provided in paragraph “ Fifth ” of testator’s will, that Morrison, as trustee, “ * * * may continue to hold in the form in which received any securities or other property which I may own at the time of my death.” As earlier stated, the bulk of testator’s assets upon death consisted of all the shares of stock in the corporations mentioned. We shall assume, therefore, in deciding the question here at issue,, that the principal of the trusts herein will consist of stock.
The question before us is whether the widow is entitled to elect to take her intestate share against the terms of the will under section 18 of the Decedent Estate Law.
The Surrogate below held that the widow was not entitled to so elect. Upon appeal to the Appellate Division, however, that court, in ruling that the testamentary provision for the widow’s benefit did not satisfy the requirements of section 18 and. that thus the widow could elect to take her intestate share, stated in part: “ In the light of the facts that the children’s interests are necessarily antagonistic to. appellant’s [.the widow], that at least upon the attainment by both children of their majorities they will have effective control of the affairs of the corporations by virtue of their outright ownership, of two thirds of the stock,, and that the" question of whether income would be available for. appellant, and, if so, the amount thereof,, will depend, upon whether the directors of, the corporations declare dividends, bearing in mind that the right to challenge, directors with respect to- the declaration of dividends is- circumscribed,- we do
The pertinent portion of section 18 of the Decedent Estate Law provides: “(d) Where the will contains an absolute legacy * * * to the surviving spouse, of or in excess of the sum of twenty-five hundred dollars and also a provision for a trust for his or her benefit for life of a principal equal to or more than the excess between said legacy * * * and his or her intestate share, no right of election whatever shall exist in the surviving spouse.”
The testator bequeathed the sum of $2,500 outright to the widow, and the principal of the trust for the widow’s benefit for life consisted of one third of the remaining property. It would, therefore, appear that the testamentary provision does, in form, comply with the requirements of paragraph (d) of section 18. Section 18 (added in 1929) is a remedial statute, and should be construed in a liberal fashion in order to effectuate the benefits intended for the surviving spouse (Matter of Byrnes, 260 N. Y. 465, 472; Matter of Bommer, 159 Misc. 511, 520). Viewed in that light, the “ trust ”, as used in section 18, must be deemed to refer to one which is substantially beneficial to such spouse (Matter of Wittner, 301 N. Y. 461, 464), and, in order to effect the purpose of providing support of the surviving spouse for life, it must constitute the substantial equivalent of such spouse’s intestate share. Hence, a provision which equals the intestate share in form, but is illusory in fact, does not bar a right of election.
In Matter of Wittner (301 N. Y. 461, supra), the testatrix directed that her property be divided into three equal parts. She gave one part outright to her son; another part in trust for her daughter; and the third part in trust for life to her surviving husband. A clause in the will provided that the
In Matter of Byrnes (260 N. Y. 465, supra) the testator left a trust for the benefit of his surviving wife for life or until her remarriage. In deciding that this was not the type of trust which barred a right of election within the meaning of section 18, we wrote (p. 472): “In adopting the new section 18, as received from the hands of the Commission, the Legislature announced its intention to be £ to increase the share of a surviving spouse in the estate of a deceased spouse, either in a case of intestacy or by an election against the terms of the will of the deceased spouse thus enlarging property rights of such surviving spouse, ’ and stated that ‘ such provisions shall be liberally construed to carry out such intention.’ ”
In Matter of Matthews (255 App. Div. 80, affd. 279 N. Y. 732), the testator set up a trust for his widow and mother. The trustee was given the power, inter alia, to determine which part
In Matter of Curley (245 App. Div. 255, affd. 269 N. Y. 548), the testator set up a trust for the benefit of his widow for life and gave the trustee thereunder the power to serve without bond, and the power to designate, during his lifetime, a substitute, who likewise could serve without bond. In addition, the trustee was given the widest discretionary powers of sale and investment of the estate property, and was relieved of all liability for any act of omission or loss in the performance of his duties. Further, the judgment of the trustee as to the allocation and value of assets was to be conclusive. We held that that was not such a trust as was contemplated by section 18 since the whole purpose of that section was to protect the surviving spouse and to give him or her increased benefits; that to permit a testator to establish a trust, so-called, but one which is so bound with restrictions and conditions that it can, at the will of another than the beneficiary, be rendered unfruitful, would be to permit the ingenuity of the draftsman to whittle away that which was given, until the right of the widow would amount to little or nothing in fact; that if the trustee in his sole discretion, and as permitted by the very terms of the will, retained the stocks owned by the testator, which he had an absolute right to do, the income of the widow would be very small, if anything, and the protection given by section 18 and the purpose of the Legislature frustrated and rendered abortive. Indeed, the Appellate Division, in that case, had said (p. 257): ‘ ‘ While we must assume that the trustee will act legally, he may act in the interest of those who take the residuary estate, rather than for the benefit of the widow, and thereby frustrate the protection which the statute gives her.”
In Matter of Schrauth (249 App. Div. 846), the testator directed that the trustees retain in trust for the benefit of his widow for life all the shares of stock which he owned in a corporation of which he was president, unless his trustees decided to sell such stock, but this could only be done with the
Thus, a trust will be deemed illusory where, because of the peculiar nature of the property, or the imposition of some term of condition, the surviving spouse’s right to receive income might possibly be negated, impaired or rendered insecure. In short, a trust within the contemplation of section 18 must provide with reasonable certainty a real and substantial benefit to the surviving spouse. (See Matter of Schmidt, 171 Misc. 95, affd. 257 App. Div. 827, affd. 282 N. Y. 787; Matter of Eddy, 173 Misc. 723, 725, affd. 258 App. Div. 860, affd. 283 N. Y. 556; Matter of Withall, 274 App. Div. 846; Matter of Bommer, 159 Misc. 511, supra; Matter of Sheppard, 189 Misc. 367; Matter of Meyer, 197 Misc. 169.)
As earlier stated, the bulk of the corpus of the trusts for the widow and children here consists of wholly owned . stock in individually owned corporations. The corporate assets, as such, belong to the corporations; and Morrison, as trustee, will hold all of the stock. The widow and the children (during their minorities), therefore, are merely beneficiaries of trusts of corporate stock. Upon the children’s attainment of their respective majorities (Harold in 1957, and Janet in 1961) their respective trusts will end, at which time, each will receive one third of the stock. The widow will never receive the corpus or any part thereof. Before both children attain their majorities, control of the corporations will reside in Morrison, as trustee. Thereafter (in 1961), the children, as two thirds’ owners of the stock, will assume control over the corporations. As stockholders, the children will be in a position to sell their interests to third parties, in which event strangers will assume control of the corporations. In any event, it is clear that the widow, for her life, will merely be the income beneficiary of a trust of a one-third minority interest in corporate stock.
Where corporate stock constitutes the trust res, income to the corporation is not necessarily income to the trust bene
In arriving at our conclusion in the present case, we are assuming that in the event the directors were to withhold dividends and thus deprive the widow of income under her trust, that such directors were acting honestly and in good faith. We are not even precluding the possibility that the directors might declare dividends regularly and in an adequate amount. It is possible, however, because of the peculiar nature of the trust res, and the potentially antagonistic interests of the children (or strange third parties, in the event the children sold their interests to them) and the widow — irrespective of whether or not the directors act properly — that the widow will receive no income or inadequate income under her trust. Viewed in the light of that possibility, it is plain that the prospects of the widow under her trust are insecure. It follows that the trust set up by the testator for the widow’s life does not constitute with reasonable certainty a real and substantial benefit to her within the contemplation of section 18 of the Decedent Estate Law. Although, in form, it satisfactorily complies with the requirements of the statute, it is illusory in fact. It is immaterial that the testator did not intend that the widow should be deprived of her rights as surviving spouse. “ The only pertinent inquiry is as to whether in fact such a result has been accomplished.” (Matter of Bommer, 159 Misc. 511, 520, supra.) We believe that the tone of section 18 was aptly pointed up by Surrogate Wingate in the Bommer case as follows (159 Misc. 511, 519, supra): “ The entire theory underlying the enactments contained in section 18 is that the widow is not to be viewed as an almoner beseeching the bestowal of the crumbs from her master’s table, but as a partner and aliquot co-owner of the family property which chances to rest in the legal ownership of the nominal head of the family partnership.”
In view of the foregoing considerations, we believe that the widow’s trust does not measure up to the type of trust demanded by section 18 and that she, therefore, may exercise her right of election against the terms of the will as in intestacy. (See, also, Matter of Halperin, 201 Misc. 763.)
Morrison further contends that in any event the determination as to the widow’s petition for election against the will was prematurely made. He assigns as reasons that the estate is still in the process of administration; that estate tax returns have not been audited; that estate taxes have not been paid; and that Morrison might decide to sell the corporate securities and thus alter the nature of the trust res. This contention is untenable. Under subdivision 7 of section 18 of the Decedent Estate Law, an election by the surviving spouse must ‘ ‘ be made within six months from the date of the issuance of letters testamentary ’ ’. This the widow in the present case has done. The Surrogate decided adversely to her, and the Appellate Division, in effect, reversed such determination by permitting the widow to elect. It would serve no useful purpose at this time to defer a ruling on such issue as to whether the widow is entitled to her right of election.
The Appellate Division in effect reversed the Surrogate below, and in part stated: “ A corporation may be managed only by its directors (Manson v. Curtis, 223 N. Y. 313; Boag v. Thompson, 208 App. Div. 132) and a testamentary fiduciary, though owning the controlling amount of stock of a corporation, may not take management of the corporation out of the hands of the directors (Matter of Kohler, 231 N. Y. 353, 367; see, also, Matter of Doelger, 254 App. Div. 178, affd. 279 N. Y. 646). Accordingly, despite powers given by the will to the trustee to deal with such real estate as might be present in the trust, the court was Avithout power to authorize the trustee to manage the real estate corporations and to do so ‘ as though the said real estate were held outright by the Trustee in unincorporated form ’.” A reading of the foregoing-cited decisions impels us to conclude that they are controlling here, and we therefore agree with the Appellate Division’s disposition of the matter. (See, also, Brock v. Poor, 216 N. Y. 387, 401; Boyle v. Boyle & Co., 136 App. Div. 367, affd. 200 N. Y. 597; Matter of Browning, 258 App. Div. 621.) Moreover, and in any event, it would seem that the testator did not intend nor contemplate that the realty owned by the corporations would constitute a portion of the trust res. The trust res was made up of the corporate stock of all the realty corporations, as
The order of the Appellate Division appealed from should be affirmed, with costs to all parties, filing separate briefs, payable out of the estate.
Dye, Froessel, Van Voorhis and Burke, JJ., concur with Fuld, J.; Conway, Ch. J., dissents in an opinion in which Desmond, J., concurs.
In each proceeding: Order modified, with costs to all parties appearing separately and filing separate briefs, payable out of the estate, and case remitted to the Surrogate’s Court for proceedings not inconsistent with the opinion herein.