A New York Probate Laywer decedent Mrs. AH died in 1940. Her will admitted to probate, after minor pre-residuary dispositions, created a trust for the income benefit of her daughter M with remainder to M’s children. The trust was funded in 1946 and administered by co-trustees M, the income beneficiary and Mr. R. Mr. R died in 1959. From 1959 to June 1, 1977, the date of her death, the trust was administered by M, the income beneficiary, as sole trustee.
At her death in 1977, the remaindermen of the trust were M’s seven children, one of whom was P. M’s executor has now accounted as a fiduciary of the deceased trustee.
The account reveals that on October 9, 1963, M, as sole trustee, made a loan from the trust to P in the sum of $64,000. P executed a demand promissory note to the trust. As security, P executed an assignment of all his right, title and interest in his remainder interest, then (as now) a one-seventh share of the principal. P made interest payments on the loan from 1963 to 1968. No part of the principal of the loan has been repaid.
The accounting fiduciary now seeks to charge P’s remainder interest in the trust with the unpaid principal on the note. The unpaid principal far exceeds the value of his remainder interest. P Amend has filed objections to the account.
A New York Estate Lawyer said P’s principal objection is that the statute of limitations bars the satisfaction of his loan from the portion of trust principal now payable to him. He correctly argues that a cause of action on a demand instrument accrues and the statute of limitations begins to run upon issuance of the instrument.
In New York the theory of the statute of limitations generally followed is that the passing of the applicable period does not destroy the substantive right; it merely suspends the remedy. As a consequence, when security for a debt is a lien on property, personal or real, the lien is not impaired because the remedy at law for the recovery of the debt is barred. Since the condition for discharge of the lien is payment of the underlying obligation, the lien remains enforceable even though the remedy on the note may be suspended by interposition of the defense of statute of limitations.
The practical result is that while a creditor may be deprived of the right to enforce payment if the statute of limitations is timely interposed in an action on the note, the barring of an action on a secured debt does not affect the right to reach the security. Each action is covered by its own statute of limitations.
In the instant case, an action on the note by the trust would clearly be barred. However, the assignment by P of his remainder interest could not become effective until the trust terminated. An agreement to charge, assign or give security upon property to be acquired by the assignor in the future creates an equitable assignment. While it creates no legal estate or interest in the fund to be acquired by the promisor, it does constitute an equitable lien upon the property and when the property is acquired at a subsequent time, it may be enforced in the same manner as a lien or assignment upon specific property existing and owned by the assignor on the date of the assignment.
A Westchester County Probate Lawyer consequently, any cause of action by the trust to enforce its equitable assignment would not accrue until the trust terminated. As the trust did not terminate until 1977 and the proceeding to settle the account and enforce the assignment was commended in 1979, a cause of action on the assignment is not barred by the six year statute of limitations applicable to this proceeding.
The accounting fiduciary is authorized by reason of the assignment to set off P’s indebtedness against his one-seventh remainder interest in the principal of the trust. The principal shall be distributed in equal shares to the six other remaindermen.
A Suffolk County Probate Lawyer said that since P’s indebtedness to the trust is far greater than his remainder interest, all other objections filed by him, not previously withdrawn, are dismissed. The objections filed by the other remaindermen have been withdrawn.
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