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Court Discusses Credit Shelter Trust


A Probate Lawyer before the court is a petition brought by M, the surviving spouse of JM. M is the lifetime beneficiary of a credit shelter trust created under decedent’s last will and testament, and she and the trust share a tenancy in common in the residential real property in which petitioner resides. Petitioner asks that her (M) children, MS and JJ, as co-trustees of the trust, be compelled to distribute funds pursuant to the terms of the trust. Petitioner also asks that the court direct the trustees to pay petitioner’s claims for reimbursement of expenditures which she made in connection with the real property, and the cost of her home health companions.

Petitioner also seeks an order compelling the trustees to enter into a reverse mortgage on the real property. MS, in her capacity as co-trustee, has indicated her willingness to provide the relief requested in the petition, but has been unable to do so without the cooperation of her co-trustee, JJ. Petitioner asks the court to remove JJ as co-trustee if he continues to refuse to provide petitioner with the relief she is seeking, and to charge JJ with costs and legal fees incurred in connection with this proceeding.

An Estate Lawyer said JM died on September 2, 1991, leaving a last will and testament dated April 18, 1991. He was survived by his wife, M, and their five adult children, MS, JJ, MJ, JP and J. The will was admitted to probate and letters were issued to M as executor on November 19, 1991. On May 12, 1992, letters issued to MS and JJ as co-trustees of the credit shelter trust created under Article Second of decedent’s will.

Nassau County Probate Lawyers said that under the terms of Article Second (1) of the will, M is to receive (i) all of the income from the trust at least quarter-annually, (ii) the greater of five thousand dollars or five percent of the aggregate value of principal annually if requested by M in writing (a “five and five demand”), and (iii) such amounts of principal as the co-trustees shall determine would be necessary for M’s health, education, maintenance or support. Upon M’s death, the corpus will be subdivided for the benefit of decedent’s children in accordance with complex directions set forth in decedent’s will. The decedent’s interest in the tenancy in common was transferred to the trust, along with some securities and cash.

A Staten Island Probate Lawyer said that companion proceedings have been filed with this court by petitioner and each of the co-trustees. In the context of these related matters, the parties executed two stipulations, parts of which are pertinent to the present matter. The first stipulation was signed by each of the two co-trustees and so ordered by the Surrogate on June 6, 2007. A second stipulation was signed on January 8, 2008 by each party’s attorney. A copy of this 2008 agreement was provided to the court by JJ, as an exhibit to his verified answer to the petition now before the court.

Issues Presented

The petition names both co-trustees as respondents, but the documents reflect MS’s willingness to provide her mother with the relief requested. The court must determine whether JJ should be:

I. Compelled to make distributions from the credit shelter trust:

(A) Pursuant to M’s exercise of her five and five demand, (B) In reimbursement of expenditures made by M which benefited the trust’s interest in the real estate, and (C) To repay M for payments made to her home health companions;

II. Compelled to enter into a reverse mortgage on the real property;

III. Removed as co-trustee if he refuses to make distributions and reimbursements or cooperate in obtaining a reverse mortgage; and


Application of the Stipulations

It is well established that courts favor stipulations and will set them aside only where there are grounds which would be sufficient to invalidate a contract. Such grounds would include fraud, mistake or deceit. In reviewing each of the issues raised by M’s petition, the court must consider the application of the stipulations, as well as the trustees’ obligations under the will and applicable law.

Distributions Pursuant to the Exercise of Petitioner’s Five and Five Demand

Paragraph SECOND (1)(ii) of decedent’s will provides:

“(ii) In each calendar year, including the calendar year in which my death shall occur, my said wife shall have the power, exercisable by an instrument in writing signed by her and delivered to my Trustees, to require my Trustees to pay to her or as she may designate out of the principal of such trust an amount not exceeding (a) Five Thousand ($5,000.00) Dollars or (b) five percent (5%) of the aggregate value of the principal of said trust at the time of the delivery of such instrument, whichever is greater.

The power to require principal in any calendar year conferred upon my wife by this paragraph shall expire on the last day of each calendar year and shall not be cumulative.”

On October 26, 2006, M submitted a written document to the trustees in exercise of her five and five demand. It included an appraisal of the real property by a licensed residential appraiser. This was followed by a second written claim on December 11, 2006, which included a concurrent valuation of the marketable securities held in the trust. Based on these valuations, M demanded the amount of $22,504.00. M made a written demand on June 21, 2007 in exercise of her five and five demand for 2007 in the amount of $21,279.24. This demand was based on the real estate appraisal and an updated brokerage statement reflecting the contemporary value of the securities held in the trust, a copy of which was provided to respondent’s attorney.

Respondent trustee does not dispute that M has properly exercised this power for 2006 and 2007, nor does he offer any proof that the valuations are incorrect. The court notes that a petition for judicial settlement of account was filed by MS on January 2, 2007, followed by an amended petition and amended accounting filed on July 7, 2007. The accounting reflects cash and securities valued at $92,141.00 as of December 31, 2006, plus the trust’s interest in the residential real estate. In addition to the formal accounting, JJ has been provided with competent and professional appraisals of the trust assets, as noted above. JJ does not indicate that he has made any independent effort to obtain an alternate valuation of the trust assets.

The trustees are obligated to fulfill the five and five demand payments to M pursuant to power granted to her by decedent and are ordered to do so. JJ will retain the right to object to the calculation of these payments in the course of the pending accounting proceeding.

Reimbursement of Funds Expended in Connection with Jointly Owned Real Estate

In the present case, there can be no question that the taxes paid by petitioner were necessary for the preservation of the property. Such payment may be reduced by any amount that was previously paid by the trustees to M in reimbursement of these expenditures.

As to the second real estate claim, the parties must be given the opportunity to introduce evidence on these issues, even as the court notes that the party refusing to share in these expenses is the co-trustee of a trust which was created for the priM benefit of petitioner. Accordingly, this matter will appear on the court’s calendar on July 30, 2008 at 10:00 a.m. for a conference at which time a discovery order, if necessary, will be entered and a hearing date scheduled.

Repayment of Monies Disbursed for Home Health Companions

In his verified answer, JJ presents two arguments to support his refusal to reimburse M for the expense of her home health companions. However, JJ’ agreement in the 2007 stipulation to reimburse M for the cost of home health aides was “so ordered” and he has not taken any affirmative steps to be relieved of the terms thereof, and unless and until he successfully moves to modify or vacate the terms of the stipulation, it remains an order of this court.

Reverse Mortgage

Petitioner has asked the court to compel JJ to cooperate in obtaining a reverse mortgage on real property in which the trust and petitioner each hold a fifty percent interest. While such an action is not mandated by the terms of the instrument, it is well settled that in administering a trust, the trustees must look at the intent of the decedent. A review of Article Second of decedent’s will indicates that decedent’s priM intent was to provide for his wife, M, as evidenced by the fact that decedent bequeathed his entire estate to M, sheltering the available unified credit by placing a portion of the estate in trust for M’s lifetime, and giving the balance to her outright. While M is alive she is the sole trust beneficiary, and she is to receive all of the income. The will directs the trustees to make distributions of principal to M as necessary for her health, education, maintenance or support. JJ is directed to assist M in applying for a reverse mortgage by executing any documents presented to him by M’s attorney and returning them completed and signed within ten days of receipt.


The court grants those portions of the petition which ask that JJ be ordered to pay M’s claims pursuant to her five and five demand, that JJ reimburse M for the trust’s proportionate share of the real estate taxes, and that JJ be ordered to assist M in obtaining a reverse mortgage. The request for relief which concerns reimbursement of expenditures incurred in connection with the removal and demolition of a room in the residence and repayment for cost of the home health aides will be held in abeyance pending the conference scheduled for July 30, 2008.

JJ has averred that as of March 25, 2008, all of the liquid assets of the trust have been depleted, leaving the tenancy in common as the sole trust asset. JJ has offered no explanation as to why the liquid assets have been so totally depleted as to render the trustees incapable of making payments pursuant to the five and five demand, particularly in view of the trust’s receipt in January 2008 of $148,000, which represents one-half of the proceeds of the home equity loan. This decision constitutes the order of the court and no additional order shall be submitted.

When the decedent will has created a trust for the benefit of certain heir, management of said trust must be given to trustworthy person.

In cases where the person in charge of the trust employs some personal interest to the detriment of the beneficiary, contact the Kings County Estate Attorneys and Kings County Probate Attorneys of the Stephen Bilkis & Associates.

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