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Petitioner Seeks Final Judicial Settlement of Accounts


The petitioner seeks a final judicial settlement of its accounts as Executor under the last Will and Testament of the deceased. As a part of the judicial settlement, petitioner requests this Surrogate’s Court to direct by appropriate order that future payments of support to decedent’s surviving first wife be made an obligation of the Trustee of decedent’s residuary estate and payable from the income and, if necessary, the principal of that residuary trust.

It appears without dispute that by an agreement dated October 10, 1952, decedent assumed an obligation to pay the sum of $300 a month to his first wife, for her support. It was provided that such monthly payments were to continue for the lifetime of the first wife. The Executor properly concluded that the obligation for payment survived the decedent and was binding upon the estate. The agreement is valid and enforceable. The accounts of the Executor disclose that the required payments have been considered as periodically accruing debts and have been paid monthly by the Executor throughout the administration of the estate.

The issue in this case is whether the final judicial settlement of the executor’s accounts should be granted.

In this accounting proceeding, provisions for future payments of support to decedent’s first wife are required. It is axiomatic that these provisions must comply with the applicable statutes and fairly resolve the equities of all parties concerned. Proceeding within this general framework, an examination of relevant statutory provisions is first in order. Sec. 1804 of the Surrogate’s Court Procedure Act sets forth the statutory requirements for payment of contingent or unliquidated claims. Subd. 1 of Sec. 1804 provides in part: and there shall be no distribution without reservation of such estate assets as the court shall determine to be adequate to pay the contingent or unliquidated claim when the amount thereof shall become due and payable.

Subd. 2 of Sec. 1804 contains an additional relevant statutory provision: if the contingent or unliquidated claim has not become so fixed and liquidated the decree on a final accounting shall direct that the assets found sufficient to satisfy the claim or the proportion to which it is entitled Be retained in the hands of the accounting party for such period or periods as the court may deem proper for the purpose of being applied to the payment of the claim when fixed and liquidated and so much of the assets as are not needed for that purpose Be afterwards distributed according to law’.

The acknowledged claim of decedent’s first wife is based upon a written contract providing for monthly payments of $300 until her death. Her claim is not dependent upon the happening of a future event. The right to payment exists presently. Only the amount of required future payments is uncertain. The claim here is unliquidated, not contingent. Petitioner urges that payment of the unliquidated claim of decedent’s first wife would be best provided for by immediate discharge of the Executor and the final settlement of its accounts through an order directing that future payments on such claim be made from the trust of decedent’s residuary estate and by the Trustee of that trust.

The basis of petitioner’s argument appears to be paragraph ‘FIRST’ of decedent’s will. It provided as follows: ‘In the event that my former wife, shall survive me, I authorize and empower my executor to purchase an annuity in favor of the former, in an amount sufficient to cover the obligation that I have undertaken for her support by stipulation and agreement dated October 10, 1952, but this authorization shall not preclude my executor in its absolute discretion from making any different settlement or adjustment of said obligation’.

In support of its request petitioner advances several arguments. It first argues against the purchase of an annuity for decedent’s former wife. An affidavit of petitioner’s trust officer cites that she is 82 years of age and in an impaired condition of health; that the cost of an annuity, without refund, upon her death is $21,427.10 and the cost of an annuity, with a guaranteed return of basic purchase price is $26,609.90. Petitioner notes that an early death of the former wife would result in a non-recoverable loss of a substantial portion of the cost of any non-refund type of annuity. It notes that in the instance of a purchase of a guaranteed return type annuity that while the purchase price is fully recoverable, a portion of the recovery stems from income earned on the balance of the fund and over the full term of the annuity. The result, it contends, would be that recovery would be protracted over a period of years.

For the reasons stated petitioner contends that its voluntary purchase of either type of annuity would be an abuse of discretion. It further contends and upon the same reasons, that this court should not require such purchase. The court accepts the first contention. There is no nice precise litmus paper test for the exercise of discretion. It is not the province of this court to substitute its judgment for that of the executor, providing always that in the exercise of its discretion the executor has not acted arbitrarily, or contrary to established principles of law. This court cannot say that the risk of loss in the one instance and that of delay in the other are insufficient, or improper to support petitioner’s decision not to purchase an annuity. The court agrees with the second contention of petitioner, but for a different and more compelling reason, viz: the absence in this state of any authority, either by statute or judicial precedent that would authorize this or any Surrogate’s Court to order a lump sum purchase of an annuity in payment of the unliquidated claim currently due.

The applicable statute, Sec. 1804 SCPA, does not authorize such procedure. It provides that provision for payment will be done by the ‘reservation of such estate assets as the court shall determine to be adequate to pay the unliquidated claim when the amount thereof shall become due and payable’. It directs that ‘assets found sufficient to satisfy the claim or the proportion to which it is entitled shall be retained in the hands of the accounting part. It commands that the decree on final accounting ‘shall direct’ the retention of required assets by the ‘accounting party’.

A review of the history of the present requirements of Sec. 1804 Surrogate’s Court Procedure Act evidences the clear legislative intent that payment of unliquidated claims be provided for through reservation of assets and by the executor or administrator of the decedent. It appears that the earliest statutory provision providing for proof and payment of contingent or unliquidated claims was made in 1921 through amendment to Sec. 207 Surrogate’s Court Act.

In 1963, upon the recommendation of the Temporary Commission on the Law of Estates, Sec. 207 Surrogate’s Court Act was amended and all provisions for payment of unliquidated and contingent claims were contained in a newly added Sec. 208–b of the Surrogate’s Court Act. No change was made in the provisions for the reservation of assets for contingent or unliquidated claims nor in the requirements for the retention of such assets by the accounting party. Most recently, in 1964, these same requirements were recommended for continuance by the Commission on the Law of Estates. The Legislature, following the recommendation of the commission, included them in Sec. 1804 of the present Surrogate’s Court Procedure Act upon its enactment in 1966. They continue extant today.

Logic and reason support the statutory scheme of providing for payment of unliquidated claims through the reservation of assets by the accounting party. While it is true, as the petitioner urges, that the law favors the early conclusion of estate proceedings, it is equally true that it first requires payment of decedent’s debts. Witness the required statutory period for the ascertainment of creditors and the payment of their claims.

The express command of the statute, the authoritative judicial precedent, the legislative history reflecting the continuance of current requirements through fifty years of review by legislature, judiciary, special commissions, law reviews and the bar generally, together with the accepted practice that a decedent’s debts be paid before distribution, all lead this court to the conclusion that there is an established public policy in this state that contingent and unliquidated debts of a decedent are to be provided for; that provision for such payment is by reservation of assets; that the amount of assets to be reserved shall be determined by a Surrogate’s Court; that the person charged with the responsibility of providing for payment by reservation of assets is the executor or administrator of decedent’s estate; that the final distribution of assets, settlement of the accounts and discharge of the administrator or executor must be delayed until such claims have been paid, or discharged, or the assets reserved exhausted.

The discretionary power given to the petitioner under decedent’s will must now be considered. After authorizing the purchase of an annuity to provide for the support payments due his first wife, decedent stated but this authorization shall not preclude my executor in its absolute discretion, from making any different settlement or adjustment of said obligation’. (Paragraph ‘FIRST’ of decedent’s will). Concededly to date it has been the duty of the executor to provide for payment of support due decedent’s first wife from all assets in the estate. Does the quoted discretionary power change the normal procedure for payment of contingent and unliquidated claims and authorize the executor upon its final accounting to transfer its obligation to the trustee of decedent’s residuary trust with provision that future payments be made from the interest and principal of that trust fund? This is the critical judicial problem presented.

Petitioner next contends that everyone interested in the residuary trust is agreeable to its proposal. Accordingly, it argues that this court should grant the relief sought as a matter of course. It appears that the decedent’s second wife signed a waiver of citation to the judicial settlement herein. She has raised no objection and petitioner recites that she actively desires the petitioner’s proposal be given effect. The three children of the decedent named as remaindermen have filed waivers of citation to the judicial settlement. Petitioner, as trustee, has also signed a waiver of citation and petitions for a decree authorizing its proposal. Decedent’s first wife was served with a citation. She has raised no objection. Further, after the submission of the petition for judicial settlement and while the matter was under consideration by this court, the first wife also signed and submitted to the court a written consent to the petitioner’s proposal. Do these facts individually, or collectively authorize this court to grant the relief requested? In the judgment of this court they do not.

As we have noted, petitioner’s proposal requires changes to provisions of the residuary trust concerning payment of income, right of invasion of principal and the time of termination. What petitioner seeks is an amendment of a testamentary trust of decedent’s estate. It seeks this after the death of the creator of the trust. 7–1.9 of Estates, Powers and Trusts Law is the successor statute to former Personal Property Law, Sec. 23 and Real Property Law, Sec. 118. It controls the revocation or amendment of trusts. Subd. (a) of 7–1.9 E.P.T.L. provides in part: ‘Upon the written consent of all the persons beneficially interested in a trust of property, heretofore or hereafter created, the creator of such trust may revoke or amend the whole or any part thereof by an instrument in writing.’ Here, decedent created a valid trust which was to continue until death or remarriage of his second wife. The creator of that trust is now dead. As a consequence, the trust may not be amended or revoked.

The will of decedent gives broad powers to both the executor and trustee. Included is the power of the executor to hold property in the form it was upon the death of the testator. In addition, the executor is authorized to invest and reinvest in securities of its choice without restriction as to whether such investments are permissible under any present or future applicable law, rule or court decision. (Paragraph ‘Eleventh’, Subparagraphs A and D, decedent’s will).

The decision of this court is that the executor will retain in its possession assets of the value of $66,144.84 for the purpose of providing payment of the unliquidated claim of decedent’s first wife and in the management of such reserved assets the executor is free to exercise the discretionary power of investment granted it by the decedent.

It is ordered that a decree settling the accounts of the executor in accordance with the decision reached be submitted upon notice to all interested parties.

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