New York Law Review

Tag: Trust Income

  • Matter of Bailis, 16 N.Y.2d 74 (1965): Accrued Income and Widow’s Right of Election

    Matter of Bailis, 16 N.Y.2d 74 (1965)

    A stipulation against the apportionment of accrued income in a trust does not automatically deprive a widow of her right to elect against a will under Section 18 of the Decedent Estate Law.

    Summary

    This case addresses whether a clause prohibiting the apportionment of accrued income in a trust established for a widow’s benefit disqualifies the trust from satisfying the requirements of Section 18 of the Decedent Estate Law, thus granting her the right to elect against the will. The Court of Appeals held that such a stipulation, by itself, does not deprive the widow of the income benefit, and therefore, does not automatically give rise to a right of election. Additionally, the Court addressed the issue of counsel fees, determining that they should not be awarded out of the estate in this instance.

    Facts

    The testator established a trust for his widow’s life benefit in his will. The trust contained a provision stipulating against the apportionment of accrued income, meaning income earned by the trust corpus but not yet payable to the trustee at a specific time (presumably, the widow’s death) would not be apportioned. The widow sought to elect against the will, arguing the trust did not provide her with the minimum benefit required under Section 18 of the Decedent Estate Law due to the accrued income clause.

    Procedural History

    The case originated in the Surrogate’s Court, Queens County. The Surrogate’s Court’s initial order was appealed. The Appellate Division’s order was then appealed to the New York Court of Appeals.

    Issue(s)

    1. Whether a stipulation against the apportionment of accrued income in a trust for life automatically deprives the widow of the benefit of the income from the trust under Section 18 of the Decedent Estate Law, thus granting her a right of election?

    2. Whether counsel fees should be awarded out of the estate in this proceeding?

    Holding

    1. No, because a stipulation against the apportionment of accrued income, in and of itself, does not deprive the widow of the benefit of the income from a trust for life under Section 18 of the Decedent Estate Law.

    2. No, because counsel fees should not be awarded out of the estate in this instance.

    Court’s Reasoning

    The Court of Appeals relied on Matter of Byrnes, 260 N.Y. 465 (1932) and legislative history to support its holding. The Court reasoned that the mere presence of a clause prohibiting apportionment of accrued income does not automatically render the trust insufficient to satisfy Section 18. The focus remains on whether the trust, as a whole, provides the widow with the intended benefits. The court emphasized that the intent of Section 18 was to protect widows, but not to allow them to invalidate testamentary plans based on technicalities if the overall benefit was adequate. Regarding counsel fees, the court cited Surrogate’s Court Act § 278 and Matter of Liberman, 6 N.Y.2d 525 (1959), indicating that awarding counsel fees out of the estate was inappropriate in this particular case.

    The court directly stated its holding: “We hold that a stipulation against the apportionment of accrued income, i.e., income earned by the corpus, but not yet payable to the trustee, does not, in and of itself, deprive the widow of the benefit of the income from a trust for life under section 18 of the Decedent Estate Law.”

  • Mabbett v. White, 12 N.Y. 442 (1855): Limits on Reaching Trust Income in Supplementary Proceedings

    Mabbett v. White, 12 N.Y. 442 (1855)

    A judgment creditor cannot reach the income of a trust established by a third party for the support of a beneficiary through supplementary proceedings unless a clear surplus exists beyond what is necessary for the beneficiary’s support, and such a determination requires a separate equitable action.

    Summary

    Mabbett v. White addresses the ability of a judgment creditor to access trust income for debt satisfaction through supplementary proceedings. The court held that such income, intended for the beneficiary’s support and originating from a third party, cannot be reached unless a demonstrable surplus exists beyond what is needed for that support. The determination of such a surplus necessitates a distinct equitable action involving all relevant parties rather than summary proceedings. This case clarifies the limitations on using supplementary proceedings to access trust assets and underscores the need for a more comprehensive equitable action to determine surplus income.

    Facts

    Ira Locke obtained a judgment against Truman G. Mabbett. Mabbett’s deceased wife, Caroline, had established a trust in her will, naming Catharine Williams as the trustee. The trust directed Williams to use the income for Truman Mabbett’s support. Locke initiated supplementary proceedings, claiming that Williams held a significant amount of trust income exceeding what was necessary for Mabbett’s support. Locke sought to seize this alleged surplus to satisfy his judgment.

    Procedural History

    The judgment creditor, Locke, initiated supplementary proceedings. A referee was appointed to examine Mabbett and Williams. Based on the referee’s report, the judge ordered Williams and Mabbett to apply a specified amount of trust income to satisfy Locke’s judgment. Mabbett and Williams appealed to the General Term, which affirmed the order. They then appealed to the New York Court of Appeals.

    Issue(s)

    Whether a judgment creditor can reach the income of a trust established by a third party for the support of the beneficiary through supplementary proceedings under the Code.

    Holding

    No, because the determination of a surplus requires a separate equitable action involving all relevant parties, including the trustee and beneficiary, and cannot be summarily decided in supplementary proceedings.

    Court’s Reasoning

    The Court of Appeals reversed the lower courts’ orders, holding that supplementary proceedings were inappropriate for reaching the trust income. The court relied heavily on the precedent set in Graff v. Bennett, which established that only the surplus income, exceeding what is necessary for the beneficiary’s support, can potentially be reached by creditors. The court emphasized that the existence and amount of any such surplus cannot be summarily determined in supplementary proceedings. Instead, a separate equitable action is required, where the issue of necessary support is directly addressed, and all parties (trustee and beneficiary) are involved. The court noted, “This surplus, it has been held, is not properly ascertainable under supplementary proceedings to discover and appropriate the debtor’s property to the satisfaction of the judgment, but only in a suit or proceeding, where the issue is directly made upon the amount necessary for a debtor’s support, and to which the trustees and cestui que trust are parties.” The court also raised, but did not definitively decide, the question of whether trust income from a third party intended for support could ever be reached by creditors, even with a surplus.