Matter of Estate of Friedrich, 59 N.Y.2d 1023 (1983)
A depositor’s withdrawal of funds from a Totten trust account operates as a revocation of the trust, preventing the beneficiary from claiming the proceeds unless extraordinary circumstances such as fraud or duress are present.
Summary
The New York Court of Appeals addressed whether the withdrawal of funds from a Totten trust account by the depositor, who subsequently died intestate, effectively revoked the trust. The decedent had established a Totten trust for Camphill Village, U.S.A., Inc., but later withdrew the funds, depositing a portion into a new account in his name alone. The Court held that the withdrawal, coupled with the change in account designation, revoked the trust in the absence of extraordinary circumstances such as fraud or duress, thus precluding Camphill Village from claiming the funds.
Facts
The decedent created a Totten trust in 1969, naming Camphill Village, U.S.A., Inc. as the beneficiary. He informed Camphill of the account in 1973. In 1980, the decedent withdrew all funds from the Totten trust account. He transferred $8,000 to a new, higher-interest account in his name alone, $3,930 to his personal checking account, and took $50 in cash. The signature card for the new account indicated it was under the decedent’s name individually, and he made no subsequent request to change the title of the account to reflect a trust.
Procedural History
The Surrogate’s Court initially found that the decedent did not intend to revoke the trust and dismissed the State’s claim that the funds should escheat. The Appellate Division modified this decision, concluding that the withdrawal of funds revoked the trust under EPTL 7-5.2 (subd 1) and allowing the State’s objection. The Court of Appeals affirmed the Appellate Division’s result.
Issue(s)
Whether the decedent’s withdrawal of funds from a Totten trust account, coupled with the deposit of a portion of the funds into a new account in his name alone, constituted a revocation of the Totten trust.
Holding
Yes, because a depositor’s withdrawal of funds in a Totten trust operates as a revocation, and the beneficiary cannot claim the proceeds unless there are extraordinary circumstances such as fraud or duress, which were not present in this case.
Court’s Reasoning
The Court of Appeals reasoned that while EPTL 7-5.2 (subd 1) provides an objective standard for revoking Totten trusts via withdrawals, it doesn’t mandate that every withdrawal necessarily revokes the trust. The key principle, according to the court, is that a withdrawal generally acts as a revocation unless extraordinary circumstances exist. The court emphasized the importance of the depositor’s actions in changing the account and not designating the new account as a trust for Camphill Village. “By withdrawing the funds, requesting the change in the account without instructing the bank officer to record the new account as one in trust for Camphill Village, and executing the necessary documents after the account had been opened in his name individually, decedent here revoked the Totten trust.” The Court cited precedent, including Matter of Totten, and the Restatement of Trusts 2d, § 58, Comment c, to support the general rule that withdrawal revokes the trust. The absence of any indication of fraud, duress, or unauthorized action led the Court to conclude that the Totten trust was effectively revoked. The Court distinguished the statute (EPTL 7-5.2) from the common law rule regarding revocation by withdrawal, clarifying that the statute addresses a different issue concerning the objective evidence required for revocation, but does not eliminate the common law principle that a withdrawal, in the absence of unusual circumstances, acts as a revocation.