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Review Your Estate Plan Regularly

It is a good idea to review your estate plan periodically. If you are leaving assets to a charity in your Will or Trust every so often make sure the charity still exists; if it does not, there are two potentially competing legal doctrines found in the Estates Powers and Trusts Law (“EPTL”) that could determine how your assets get distributed; EPTL 2-1.15 and the cy pres doctrine (EPTL 8-1.1).

EPTL 2-1.15 states, in part, whenever the remainder of a…trust passes…to two or more designated beneficiaries, and such remainder is ineffective in part and no effective alternative disposition has been made in the governing instrument, such ineffective part shall pass to the other designated beneficiary or…beneficiaries…in the proportions that their respective interests in such principal bear to the aggregate of the interests of such designated beneficiaries in such principal.

EPTL Section 8-1.1(c) governs cy pres and empowers a court to remove or modify a restriction on a charitable gift “whenever it appears to the court that circumstances have so changed since the execution of an instrument making a disposition for [charitable] purposes as to render impracticable or impossible a literal compliance with the terms of such disposition.” The court, on application of the trustee, may direct that “such disposition be administered and applied in such manner as in the judgment of the court will most effectively accomplish … [the] general purposes” of the disposition.

The following is an example of what could happen when a charitable institution closes but remains named as a beneficiary.

EXAMPLE:

Margaret from Smithtown, NY created a revocable living trust. As in most revocable livings trusts she was simultaneously the grantor, trustee, and beneficiary of her trust. When Margaret later became unable to manage her affairs, Patricia from Commack, NY assumed her duties as successor trustee.

The trust directed that, upon Margaret’s death, the trust assets be applied toward her debts and gifts to various individuals and organizations. The then acting trustee would then distribute percentages of the remaining trust assets (the residuary) to three institutions including 20% to St. Mary’s Roman Catholic School.

Margaret died in 2015, and Patricia found herself unable to make the distribution to the school because it had been closed in 2011 and the property sold to an unrelated entity. Patricia sought the Surrogate Court’s permission to distribute the school’s share equally between the other two institutions named in the residuary clause.

St. Mary’s Roman Catholic Church, New York and Roman Catholic Diocese of Albany, New York argued that the school’s share should be distributed to the parish’s faith formation ministry and a diocesan scholarship fund pursuant to the cy pres doctrine.

During the court hearing, Patricia asserted that by the time it was known that the school would close, Margaret did not have the mental capacity to revisit questions regarding the disposition of the trust assets upon her demise. Patricia also testified that decedent preplanned her funeral and burial arrangements to avoid the trappings of Catholicism and did not make a bequest to the parish in her Will.

COURT’S DECISION — FOR MARGARET. Hence, the trust assets went to the other two institutions and not to the Roman Catholic Church.

REASONING:

The court examined whether the evidence evinced a general charitable intent on the part of Margaret, defined “as a desire to give to charity generally, rather than merely to give to a particular object or institution.” In answering that question, the court read the trust agreement in its entirety and afforded its words “their ordinary and natural meaning.”

The court reasoned that all of the institutions Margaret left assets to were located in Smithtown, Suffolk County, suggesting an intent to give to organizations in the area. When viewed in that context, a direction to distribute part of the residuary trust corpus “to the [school at] 123 Main Street, Smithtown, New York 11787” indicates a desire to support a school at that location rather than religious education projects in general. This reading is bolstered by the silence of the trust agreement as to Margaret’s Catholic faith and the absence of gifts to the parish or other Roman Catholic institutions. Moreover, to the extent that the language of the trust agreement is unclear, Patricia’s testimony revealed that Margaret was aiming to support institutions in her adoptive hometown and had fond memories of volunteering at the school. Patricia further stated that Margaret, although a regular churchgoer who financially supported the parish, had no interest in Roman Catholic education per se and had “satisfied” what she saw as a duty to give to the parish during her lifetime. The case might be different if the school had been merged into, or if there even was, another parochial school in the Smithtown area. As things stand, however, “there is no direction which could be made by the Court which would accomplish Patricia’s intent], [and] the legacy cannot be made effective.”

LESSON: Review your estate plan regularly to ensure that your intended beneficiaries will receive your assets without the court’s involvement.

See RENNER V. ST. MARY’S ROMAN CATHOLIC CHURCH (IN RE GURNEY), Appellate Division of the Supreme Court of the State of New York·2017 NY Slip Op 05902 (N.Y. App. Div. 2017).

Futterman & Lanza, LLP has offices in Smithtown, NY, Valley Stream, NY, Southampton, NY (by appointment only) and Babylon, NY (by appointment only).

Futterman & Lanza, LLP has clients throughout Suffolk, Nassau, Queens, Brooklyn, Bronx, Richmond, New York, Westchester, and Rockland Counties.

Futterman & Lanza, LLP concentrates its practice to Elder Law, Medicaid Planning, Medicaid Applications, Estate Planning, Probate, Estate Taxes, and Estate Administration.

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Aaron E. Futterman, CPA, Esq. is a partner in the law firm of Futterman & Lanza, LLP with offices in Smithtown, NY and Valley Stream, NY and clients throughout Suffolk, Nassau, Queens, Brooklyn, Bronx, Richmond, New York, Westchester and Rockland Counties. He concentrates his practice to Elder Law, Medicaid Planning, Medicaid Applications, Estate Planning, Probate, Estate Taxes, and Estate Administration.

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