123 Misc. 2d 424 | N.Y. Sur. Ct. | 1984
OPINION OF THE COURT
In this executor’s accounting proceeding the court is required to pass on the question of virtual representation (SCPA 315). Article twentieth of the will provides for the establishment of a sprinkling trust of the entire residuary estate with income in the trustee’s discretion payable to the testatrix’ son, Robert, and any of his issue, with principal invasion for the benefit of the son authorized up to 25% of the original inventory value of the trust. Invasion of principal is also permitted for any child or grandchild of the son, limited, however, during the son’s life to 2% of the original inventory value and 25% following the son’s death. The trust is to terminate on the death of the son and his two children, Ian and Zara (grandchildren) with the principal and all accrued and accumulated income to be paid to the issue of the decedent’s son living at the termination of the trust per stirpes.
Both Ian and Zara have children of their own (great-grandchildren). It is these three great-grandchildren upon whom service of process is sought to be disposed of on the
Petitioner’s argument is based upon the theory that the grandchildren and the great-grandchildren have the requisite “same interests” under the virtual representation statute in this executor’s accounting; that is, the maximization of the trust principal and therefore their interests are not in conflict, citing among others Matter of Sunderhauf (NYLJ, Aug. 2, 1978, p 11, col 2).
The interests of the grandchildren and the infant great-grandchildren, both of whom are presently interested in income and principal as beneficiaries of the sprinkling trust, are identical as to those interests. Thus, their interests are not future or successive as to each other as to such interests. In addition, taking into consideration SCPA 315 (subd 2, par [a], cl [i]), the three infant great-grandchildren are the remaindermen as far as this application is concerned, subject to the trustee’s limited power to invade principal.
The court must be ever mindful of its obligation to expedite the administration of estates and avoid unnecessary expenses including that of fees to be paid to guardians ad litem where possible. At the same time, the court, mindful of our litigious society, seeks to secure decrees from attack and not permit them to lie in waiting for an adult representee or for an incapacitated person to reach majority and with his disability unshackled to move to vacate same on the basis that they were not adequately represented. The court has an obligation to seek to insure finality of its decrees (Matter of Putignano, 82 Misc 2d 389) and to avoid a possible later attack based on lack of jurisdiction (see, e.g., Matter of Holland, 84 Misc 2d 922). Accordingly, the court must carefully evaluate the petitioner’s request to use virtual representation, especially where any doubt may exist in the court’s mind as to the adequacy of the representation (Matter of Alexander, NYLJ, Jan. 2, 1979, p 12, col 2). Likewise practitioners should be alerted to the admonition set forth by Surrogate Sobel in the last paragraph of his decision in Matter of Putignano (supra) of the effects of making an error in applying the statute.
Surrogate Sobel in Matter of Putignano (supra), held that the virtual representation applies equally to income interests where coupled with successive remainder interests. However, the income interests need not be successive but, in fact, the interest in income of both representor and representee may be present and concurrent as is usually the case in a sprinkling trust.
While the statute has been amended since that decision to clearly indicate that the statute applies to income as well as principal interests (SCPA 315, subd 1), if the income interests are concurrent (lateral) and not successive (vertical) virtual representation does not apply unless the will specifically authorizes lateral representation (SCPA 315, subd 5). While SCPA 315 now authorizes lateral virtual representation where the will so provides, this was not the case prior to the enactment of SCPA 315 (subd 5) (Matter of Peck, NYLJ, June 13, 1979, p 12, col 2). The will here does not authorize lateral or horizontal virtual representation. The great-grandchildren, having a like interest in income as the grandchildren, are to be made parties to this proceeding and may not be virtually represented.
While this court in Matter of Schwartz (71 Misc 2d 80) held virtual representation applied in a sprinkling trust situation, there the representor and representee had successive remainder interests which is a distinguishing factor. Whether Schwartz should be followed need not now be decided.
There are further problems concerning use of virtual representation herein. Assuming the income interest need not be successive to have virtual representation of one
The statute reads in part:
Ҥ315. Joinder and representation of persons interested in estates
“1. The provisions of this section shall apply in any proceeding in which all persons interested in the estate are required to be served with process. For the purposes of this section, the term ‘an interest in the estate’ includes both interests in income and interests in principal.
“2. Representation of class interests.
“(a) Where an interest in the estate has been limited as follows, it shall not be necessary to serve process on any other person than as herein provided * * *
“(ii) To a person who is a party to the proceeding and the same interest has been further limited upon the happening of a future event to a class of persons described in terms of their relationship to such party, the party to the proceeding * * *
“3. Representation of contingent interests.
“Where an interest in the estate has been limited to a person who is a party to the proceeding and the same interest has been further limited upon the happening of a future event to any other person it shall not be necessary to serve such other person.”
Do these provisions mean that an income interest can represent a principal interest? Research does not supply any foundation that income interests were included under SCPA 315 (subd 1) to accomplish this. It was obviously done to permit an income interest to represent other income interests which previously lacked statutory authority (see Matter of Putignano, supra).
Are subdivisions 2 (cl [a], par [ii]) and 3 intended to indicate that a present income interest could represent a future remainder interest or does it mean as to an income interest, only a present income interest may represent a future or contingent income interest?
When the statute mentions same interest, does that mean identical interests as income representing income
The Third Report (1964, p 284) of the Temporary State Commission on Estates (The Bennett Commission) indicates that a present income interest is not the same and is in fact antagonistic to a future remaining interest. If the Legislature wanted to extend instances where an income interest could possibly virtually represent a remainder interest, they could have considered extending such virtual representation to include some or all proceedings other than probate proceedings. There may be cases where this could be done, such as a right of election case (Matter of Adler, 77 Misc 2d 651). However, a right of election case is not the same as exists here in an accounting proceeding where the income and principal interest can be adverse especially under the terms of the will herein where the grandchildren may prefer to focus on their income interest where in the long term the great-grandchildren would have more of an interest in the preservation of the corpus. The grandchildren and great-grandchildren both have a potential to receive income and limited principal but the great-grandchildren are the only ultimate takers of the remainder and may therefore be benefited by a portfolio that consists of assets which have a growth potential rather than favoring a high yield potential which may be more beneficial to their parents.
As noted in Matter of Peck (supra), while some cases involving sprinkling trusts did concern partial lateral interests they were also coupled with future remaining inter
The court must be concerned with whether or not the representees are being actively represented and not with whether ór not they could be represented (Radigan, Virtual Representation, NYU, Dec. 30, 1981, p 1, col 2). It is for this reason that the proposed rules for the Surrogate’s Court throughout the State will require affidavits in order for the court to determine the adequacy of the representation. (Proposed Rule 207.18.)
Accordingly, the court finds that the great-grandchildren having a present interest in income and corpus may not be virtually represented by their parents who are also presently interested in same nor may their parents repre
Accordingly, the court directs citation be served upon the great-grandchildren.