Granwell v. Granwell, 20 N.Y.2d 91 (1967)

A gratuitous transfer of property that renders an estate insolvent can be deemed a fraudulent conveyance, regardless of actual intent, and revocable trusts and joint bank accounts can be challenged by creditors of the deceased grantor or account holder.

Summary

Leslie Granwell entered into a separation agreement promising to provide for his son, Alan, including a share of gifts, trusts, and his estate. He later remarried and established revocable trusts and joint bank accounts with his second wife, Monea, without compensating Alan. After Leslie’s death, Alan sought to recover unpaid child support and his share of the mutual funds. The court held that the revocable trusts and Leslie’s share of the joint accounts constituted fraudulent conveyances because they rendered the estate insolvent, allowing Alan to pursue his claims against Monea.

Facts

Leslie and his first wife, Jeanette, agreed that Leslie would support their son, Alan, and give him half of any gifts or trusts created during his lifetime, and half of his estate upon death. Leslie later divorced Jeanette and married Monea. During his life, Leslie created revocable trusts with Monea as the remainderman and purchased mutual funds in joint tenancy with her. He did not pay Alan half the value of these funds. Leslie’s will left everything to Monea. At the time the trusts and joint accounts were created, Leslie was not rendered insolvent. However, after his death and the transfer of these assets to Monea, his estate was nearly insolvent.

Procedural History

Alan objected to Monea’s accounting of the estate, arguing she was liable for unpaid child support and half the value of the mutual funds. The Surrogate’s Court ruled in Alan’s favor, finding the transfers fraudulent and holding Monea personally liable. The Appellate Division reversed, requiring a showing of dual intent to defraud. The New York Court of Appeals then reviewed the Appellate Division’s decision.

Issue(s)

1. Whether the establishment of inter vivos trusts, where the grantor retains the power of revocation, constitutes a fraudulent conveyance if it renders the estate insolvent at the time of death.
2. Whether funds placed in joint bank accounts are subject to the claims of the deceased account holder’s creditors.

Holding

1. Yes, because a settlor who retains an absolute power to revoke the trust remains the absolute owner of the estate conveyed, so far as the rights of creditors are concerned, right up to the time of his death.
2. Yes, because while the surviving joint tenant receives a gift of a moiety upon creation of the account, the deceased tenant’s portion remains subject to creditors’ claims until death.

Court’s Reasoning

The court reasoned that establishing revocable trusts and joint bank accounts, while seemingly transferring assets, does not fully divest the grantor/account holder of ownership until death. Regarding the revocable trusts, the court cited City Bank Farmers Trust Co. v. Cannon, 291 N.Y. 125 (1943), stating the settlor remains the “absolute owner of the estate conveyed, so far as the rights of creditors * * * are concerned” until death because “remaindermen have no vested interests until the retained powers of the settlor are terminated, usually by death”. Therefore, since the trusts rendered the estate insolvent at Leslie’s death, they were fraudulent conveyances under Debtor and Creditor Law § 273. As for the joint accounts, the court recognized Monea received a gift of one half the funds when the accounts were created, and this transfer did not render Leslie insolvent. However, the court stated that the moiety that remained Leslie’s property was subject to attachment by his creditors during his lifetime. Upon Leslie’s death, Monea only had an “expectancy” of ownership. That expectancy did not extinguish the rights of Leslie’s creditors. The court explicitly stated its previous holding in Matter of Glen, 247 App. Div. 518 (1936), which held that irrevocable title to a joint bank account vested in the surviving joint tenant at the time the account was opened, “was implicitly overruled” by its decision in City Bank. The case was remanded to determine the factual issues of whether Leslie intended the extra support payments and insurance proceeds to offset his obligations to Alan.