New York Law Review

Tag: Totten Trust

  • Eredics v. Chase Manhattan Bank, N.A., 100 N.Y.2d 106 (2003): Enforceability of Beneficiary Waiver in Separation Agreements Affecting Totten Trusts

    Eredics v. Chase Manhattan Bank, N.A., 100 N.Y.2d 106 (2003)

    A beneficiary of a Totten trust can waive their rights to the trust proceeds in a separation agreement if the waiver is explicit, voluntary, and made in good faith, but broad, general language regarding property division is insufficient to constitute such a waiver.

    Summary

    This case addresses whether a separation agreement can act as a waiver of a beneficiary’s rights to funds held in a Totten trust. The New York Court of Appeals held that while a beneficiary can waive such rights, the waiver must be explicit, voluntary, and made in good faith. In this case, the separation agreement’s broad language dividing property was insufficient to demonstrate a clear waiver of the beneficiary’s interest in the Totten trust accounts. The court emphasized the need for certainty and predictability in such matters, distinguishing this case from situations where the intent to waive rights is unambiguous.

    Facts

    Plaintiff and decedent were married and subsequently divorced. During their marriage, the decedent established five Totten trust accounts naming the plaintiff as beneficiary. After their separation, the parties entered into a separation agreement that contained general language about the division of property and mutual waivers of rights to each other’s estates. The separation agreement did not specifically mention the Totten trust accounts. Upon the decedent’s death, the plaintiff sought to claim the funds in the Totten trust accounts, but the estate argued that the separation agreement constituted a waiver of her rights as beneficiary.

    Procedural History

    The plaintiff sued the banks and the decedent’s estate seeking a declaratory judgment that she was entitled to the Totten trust funds. The estate counterclaimed, arguing that the separation agreement waived the plaintiff’s rights. The Supreme Court granted summary judgment to the plaintiff, holding that the separation agreement did not revoke the Totten trusts. The Appellate Division affirmed, focusing on the lack of statutory revocation. The Court of Appeals then reviewed the case.

    Issue(s)

    Whether a separation agreement, containing general language about property division and mutual waivers, can constitute a valid waiver of a beneficiary’s rights to funds held in a Totten trust, absent a specific mention of the trust accounts in the agreement.

    Holding

    No, because while a beneficiary can waive rights to a Totten trust, the waiver must be explicit, voluntary, and made in good faith; general language in a separation agreement is insufficient to demonstrate such an explicit waiver.

    Court’s Reasoning

    The Court of Appeals recognized that EPTL Article 7 governs how a depositor revokes a Totten trust, but it does not explicitly prevent a beneficiary from waiving their rights independently. Drawing an analogy to Silber v. Silber, where a waiver of pension benefits was upheld based on the clear intent of the parties in a QDRO, the court held that a Totten trust beneficiary could also waive their rights. However, the court emphasized that any such waiver must be explicit, voluntary, and made in good faith to ensure certainty and predictability, consistent with legislative intent. The court distinguished the current separation agreement from the QDRO in Silber. In Silber, the agreement specifically addressed the pension funds and demonstrated a clear intent to relinquish rights. Here, the separation agreement’s broad language regarding property division did not explicitly waive the plaintiff’s rights as beneficiary of the Totten trusts. The court stated, “There is no explicit waiver here, and we decline defendants’ invitation to infer such a waiver from the broad language of the agreement.” The court noted that the most specific language in the agreement actually undermined the waiver argument and highlighted the absence of specific waivers for the Totten trust, unlike waivers for other assets. The court concluded that the Totten trusts passed outside the estate, making the mutual waiver of claims against each other’s estate irrelevant to the disposition of the trust funds.

  • Blackmon v. Battcock, 69 N.Y.2d 735 (1987): Enforceability of Agreement Not to Change Will

    Blackmon v. Battcock, 69 N.Y.2d 735 (1987)

    An agreement not to change a will does not, by implication, prohibit the testator from creating Totten trusts or making inter vivos transfers unless the agreement explicitly states such a restriction.

    Summary

    Elizabeth Battcock agreed in 1971, as part of a settlement of her deceased husband’s estate, not to change her 1969 will. Subsequently, she created Totten trust accounts for beneficiaries not named in the will. Her daughter and grandchildren argued that this violated the 1971 agreement. The Court of Appeals held that the agreement, which only prohibited changes to the will and did not expressly forbid the creation of Totten trusts or other lifetime transfers, did not impliedly restrict Battcock’s actions during her lifetime. The court emphasized that restrictions on a testator’s ability to dispose of property must be clearly and unambiguously stated.

    Facts

    Elizabeth Battcock’s husband left her a minimal inheritance in his will, with the bulk going to their children. Elizabeth elected against the will and settled with the estate, receiving a portion of the assets. As part of the settlement, she agreed to “leave intact and without change” her 1969 will, which bequeathed her estate to her children or grandchildren. The settlement agreement made no mention of Totten trusts or inter vivos transfers. After her son’s death, Elizabeth created Totten trust accounts for various charities and executed new wills excluding her daughter and grandchildren.

    Procedural History

    Decedent’s daughter and grandchildren sued, arguing the Totten trusts violated the 1971 agreement. The Supreme Court, later transferred to Surrogate’s Court, granted summary judgment to the Totten trust beneficiaries, holding that the Statute of Frauds precluded implying a prohibition against Totten trusts. The Appellate Division reversed, implying a promise not to create Totten trusts. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether an agreement not to change a will implies a prohibition against the testator creating Totten trusts or making other inter vivos transfers, when the agreement is silent on such matters.

    Holding

    No, because an agreement not to change a will does not implicitly restrict the testator from creating Totten trusts or making inter vivos transfers unless such restrictions are expressly stated in the agreement.

    Court’s Reasoning

    The Court of Appeals emphasized that a will is typically revocable, and testators retain the right to dispose of property during their lifetimes. While individuals can surrender their power of revocation by agreement, such renunciations are strictly scrutinized, requiring clear and unambiguous evidence. In this case, the 1971 agreement only restricted changes to the will itself and was silent regarding other forms of property alienation. The court refused to imply a prohibition against Totten trusts, stating that it would constitute an unwarranted judicial alteration of the agreement. “In the absence of an express provision in the agreement or factors far more substantial within the four corners of the settlement agreement itself from which a judicial inference could comfortably and properly be drawn, courts should not innovate for parties after the fact.” The court also noted that, similar to contracts to establish a trust, a promise to refrain from creating trust accounts must be in writing to satisfy the Statute of Frauds. The court distinguished the case from joint will cases, where inconsistent dispositions defeat the mutuality of benefits. Since the agreement didn’t limit lifetime gifts or transfers, the decedent retained the right to create the Totten trusts.

  • Matter of Estate of Friedrich, 59 N.Y.2d 1023 (1983): Revocation of Totten Trusts by Withdrawal of Funds

    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.

  • In re Estate of Agioritis, 40 N.Y.2d 646 (1976): Surviving Spouse’s Elective Share and Totten Trusts

    In re Estate of Agioritis, 40 N.Y.2d 646 (1976)

    When a decedent deposits money into a Totten trust account after August 31, 1966, that money is subject to the surviving spouse’s right of election under EPTL 5-1.1, regardless of the source of the funds, even if the funds were transferred from pre-existing Totten trust accounts.

    Summary

    This case concerns the extent to which a surviving spouse can claim an elective share against funds held in Totten trust accounts created by the deceased spouse. The decedent had established numerous Totten trusts for collateral relatives, funded both before and after August 31, 1966 (the effective date of EPTL 5-1.1). The surviving spouse sought to include in her elective share funds deposited after that date, even if those funds originated from older, pre-1966 Totten trust accounts. The Court of Appeals held that any money deposited into Totten trusts after August 31, 1966, is subject to the surviving spouse’s right of election, regardless of its origin, overruling the prior holding in Matter of Halpern. The court reasoned that this interpretation aligns with the Legislature’s intent to protect the surviving spouse and expand the assets subject to the elective share.

    Facts

    The decedent, Nicholas Agioritis, died intestate in 1973, leaving a gross estate of approximately $800,000. A significant portion, over $650,000, was held in Totten trust savings accounts for various relatives in Greece. The decedent retained complete control over these accounts during his lifetime, and the beneficiaries did not contribute to the funds. Florence Agioritis, the surviving spouse, had been married to the decedent since 1950. She filed a notice of intention to take her elective share of the estate under EPTL 5-1.1.

    Procedural History

    The Surrogate’s Court initially ruled against the surviving spouse’s claim regarding funds transferred from pre-1966 accounts. The Appellate Division reversed this decision, holding that all deposits made after August 31, 1966, are subject to the right of election. The case then proceeded to the New York Court of Appeals.

    Issue(s)

    Whether money deposited in Totten trust savings accounts after August 31, 1966, from funds previously held in similar accounts before that date, is subject to the surviving spouse’s right of election under EPTL 5-1.1.

    Holding

    Yes, because the Legislature intended to expand the rights of the surviving spouse by including Totten trust bank accounts as testamentary substitutes. A change of either the beneficiary or the depositary bank constitutes a new deposit of money within the meaning of the statute.

    Court’s Reasoning

    The court examined the legislative history of EPTL 5-1.1, noting that it was enacted to address the inadequacy of prior law in protecting surviving spouses from disinheritance through inter vivos transfers, particularly Totten trusts. Prior to the enactment of EPTL 5-1.1, the case of Matter of Halpern (303 N.Y. 33 (1951)) held that Totten trusts were not illusory and could be used to defeat a spouse’s elective share. The Legislature, in enacting EPTL 5-1.1, explicitly overruled the Halpern doctrine.

    The court emphasized that the statute’s language explicitly states that all “[m]oney deposited, after August thirty-first, nineteen hundred sixty-six…in a savings account in the name of the decedent in trust for another person” is a testamentary substitute subject to the surviving spouse’s right of election. The court reasoned that a “change of either beneficiary or depositary bank constitutes a new deposit of money within the meaning of the statute.”

    The Court drew an analogy to Matter of Greenberg (261 N.Y. 474 (1933)), where a codicil executed after the effective date of a statute subjected an entire will to the statute’s provisions, even though the original will predated the statute. Similarly, the court reasoned that re-depositing money after August 31, 1966, subjects it to EPTL 5-1.1.

    The Court also held that withdrawals should be accounted for using a first-in, first-out (FIFO) method, meaning that withdrawals are deemed to come from the oldest deposits first. This method further supports the legislative intent to increase the assets subject to the elective share. The Court stated: “[W]e would apply a first-in— first-out method since it fosters the Legislature’s intention to increase the assets subject to elective rights. A contrary holding would preserve an exemption despite the decedent’s intentional withdrawal of the funds.”

  • Matter of Estate of Totten, 269 N.E.2d 712 (N.Y. 1971): Revocation of Totten Trusts Through a Will

    Matter of Estate of Totten, 269 N.E.2d 712 (N.Y. 1971)

    A Totten Trust, a bank account held in trust for another, is presumed to be an absolute trust if the depositor dies before the beneficiary without revocation; this presumption can be overcome by a will manifesting a clear intention to revoke the trust, but general language bequeathing all funds on deposit is insufficient if other factors indicate a contrary intention.

    Summary

    The New York Court of Appeals addressed whether a will’s general bequest of all funds on deposit was sufficient to revoke four Totten Trusts established by the testatrix. The Surrogate’s Court held that the will did revoke the trusts. The Appellate Division affirmed. The Court of Appeals reversed, holding that the will’s language, in the context of the entire estate and surrounding circumstances, was insufficient to overcome the presumption that the Totten Trusts were not revoked. The court emphasized the need to scrutinize the will as a whole and the surrounding circumstances to determine the testatrix’s true intention, particularly when the will’s language is not explicitly clear.

    Facts

    The testatrix had six separate bank accounts: four in Totten Trust form for the benefit of others, and two in her name alone. Her will contained a clause that stated: “I give and bequeath any and all funds on deposit to my credit, in any bank or trust company or similar financial institution.” The funds in the Totten Trust accounts represented slightly more than one-third of the total estate. The testatrix continued to have interest posted to the trust accounts until her death.

    Procedural History

    The Surrogate’s Court initially determined that the will’s language revoked the Totten Trusts. The Appellate Division affirmed this decision, finding the will’s language to be a clear expression of intent to revoke the trusts. The New York Court of Appeals reversed the Appellate Division’s order, remitting the case to the Surrogate’s Court for further proceedings.

    Issue(s)

    Whether the general language in the testatrix’s will, bequeathing “any and all funds on deposit to my credit,” was sufficient to overcome the presumption that the Totten Trusts, established by the testatrix, were not revoked before her death.

    Holding

    No, because the language in the will, considered in the context of the testatrix’s entire estate and surrounding circumstances, was insufficient to demonstrate a clear intention to revoke the Totten Trusts.

    Court’s Reasoning

    The court began by reiterating the presumption that a Totten Trust becomes an absolute trust upon the depositor’s death if no revocation or disaffirmance has occurred. While this presumption can be overcome by a will demonstrating a clear intention to revoke, the court found the will’s language in this case insufficient. The court reasoned that the will’s general language, bequeathing all funds on deposit, did not explicitly mention or disaffirm the Totten Trusts. Crucially, the court noted that the trust accounts did not comprise the majority of the estate’s assets, and the testatrix maintained other bank accounts in her own name. These factors suggested that the will’s language was not necessarily intended to encompass the Totten Trust accounts. The court also pointed to the fact that interest continued to be posted to the trust accounts up to the date of death, and a clause in the will contemplated “property passing outside [the] Will,” both indicating an intention not to revoke. The court emphasized the importance of examining the surrounding circumstances and the will as a whole to ascertain the testatrix’s true intention. The court quoted Matter of Totten (179 N. Y. 112, 126): “In case the depositor [of a Totten Trust] dies before the beneficiary without revocation, or some decisive act or declaration of disaffirmance, the presumption arises that an absolute trust was created as to the balance on hand at the death of the depositor.” The court concluded that the will’s language, in itself, was not enough to overcome this presumption, requiring a deeper scrutiny of the surrounding circumstances to determine the testatrix’s true intent.

  • Matter of Del Bello, 22 N.Y.2d 466 (1968): Attorney Misconduct and Use of Incompetent’s Funds

    Matter of Del Bello, 22 N.Y.2d 466 (1968)

    An attorney acting as a committee for an incompetent person must prioritize the incompetent’s needs and welfare, and must not use the incompetent’s funds for the attorney’s own benefit or to the detriment of the incompetent’s estate plan.

    Summary

    This case concerns the disbarment of an attorney, Del Bello, who served as the committee for an incompetent woman, Ellen Snyder. Del Bello was accused of misusing funds from a Totten trust account established by Snyder for the benefit of David Gorfinkel. The court found that Del Bello had been surcharged for improperly using the Totten trust funds when other assets were available to care for Snyder and because he had a conflict of interest related to real property transactions with Snyder before she was declared incompetent. While the court acknowledged Del Bello’s questionable conduct, it reversed the disbarment order, finding insufficient evidence that he misappropriated the funds for personal use, and remanded for reconsideration of discipline based on other charges of misconduct.

    Facts

    Ellen Snyder created a Totten trust bank account for David Gorfinkel. Snyder later became Del Bello’s client in 1953, and he was appointed as her committee in 1955 after she was declared incompetent. Del Bello transferred the funds from Snyder’s Totten trust account into an account under his name as her committee without a court order. After Snyder’s death, Gorfinkel’s estate successfully sued to recover the Totten trust funds. The bank, in turn, sued Del Bello to recover what they paid out to Gorfinkel. Prior to her incompetency, Del Bello had also prepared wills for Snyder that favored him and arranged for her to deed him the remainder interest in her real property.

    Procedural History

    The Appellate Division disbarred Del Bello based on findings related to the Gorfinkel case and the misuse of the Totten trust funds. The Appellate Division cited Del Bello’s conflict of interest stemming from spending $5,302.86 withdrawn from the Totten trust to repair real property of which he was the owner. Del Bello appealed to the New York Court of Appeals.

    Issue(s)

    Whether the attorney misappropriated the funds for personal gain instead of using the funds for the care of the incompetent, and therefore should be disbarred.

    Holding

    No, because the court found that the Appellate Division’s finding that Del Bello misappropriated $5,302.86 from the Totten trust was not supported by evidence and the record indicates the funds were used for the ward’s maintenance and support. The matter was remanded to the Appellate Division to impose discipline based on other charges.

    Court’s Reasoning

    The Court of Appeals found that Del Bello’s actions in managing Snyder’s assets were questionable, particularly his handling of the Totten trust account and the real property transactions. The court emphasized that a committee’s primary duty is to act in the best interest of the incompetent person. “Unless the proceeds of such a bank account are necessarily or properly required for the support or welfare of the incompetent, neither the committee nor the court whose arm the committee is can alter the devolution, upon death, of the property of an incompetent”. The court found that Del Bello should not have been accused of spending the Totten trust account on real estate improvements of which he owned the remainder. However, the court criticized Del Bello for drafting wills in his favor and obtaining a deed for the remainder interest in Snyder’s property, creating a conflict of interest. The court also noted that he should have disclosed his remainder interest when the welfare authorities advanced money on a mortgage given by Snyder. The court decided that the Appellate Division’s determination to disbar Del Bello was inappropriate in light of the lack of evidence that he had misappropriated the trust funds for personal use. The court stated: “It is one thing for the committee of an incompetent to misappropriate her funds by devoting them to his own private use; it is quite another matter to become liable to a surcharge for resorting to one particular asset of an incompetent rather than to another in order to provide for her support.”