Article

Deference or Discretion: Assessing Fiduciary Eligibility

In a previous article,¹ we discussed the issue of standing to object to a fiduciary's appointment under Surrogate's Court Procedure Act (SCPA) §709. Assuming you have crossed that hurdle, what must a contestant show to a court to challenge successfully the appointment of a testator's chosen fiduciary?

SCPA §707

SCPA §707 sets forth both objective and subjective criteria which the court may consider in assessing the eligibility of a nominated fiduciary. The objective standards for eligibility give little reason for pause because either you are an infant or not, an incompetent or not, a nondomiciliary or not, or a felon or not, all of which are easily verifiable and afford the court virtually no discretion. The subjective standards, however, are not so easily ascertained and provide the court with a level of discretion.

Query then, how much discretion does the statute confer upon the court and how are the standards being utilized in determining eligibility?

The subjective standards that the court may rely upon when denying Letters are contained in SCPA 707(1)(e), which provides that a court may find a named executor ineligible if that person is:

one who does not possess the qualifications required of a fiduciary by reason of substance abuse, dishonesty, improvidence, want of understanding, or who is otherwise unfit for the execution of the office. Id. at 707(1)(e), as amended by L. 1993, ch. 514 §13.

The final clause in this provision, which imparts on the court the ability to deny Letters to those deemed "unfit for the execution of office," was the latest addition to this section by the New York Legislature, effective as of Jan. 1, 1994. Id.

By adding language like "unfit," but providing no discernible standards as to what qualifies as such, the Legislature provided courts with broader power than they previously had to disqualify fiduciaries in the beginning stages of probate or administration, most likely in hopes that such exclusionary power would promote a more efficient administration of an estate. Despite this direction from the Legislature, deference to a testator's chosen fiduciary remains primary, probably from concern that this added discretion will lead to an increase in disqualification proceedings, thereby precluding efficient administrations, the very goal the Legislature had in mind in amending SCPA 707(1)(e).

Therefore, while the court and the Legislature both seek expeditious administration as a matter of policy, they have differing approaches as to how it could best be achieved.² The Legislature implies that only persons possessing the highest level of honor and judgment should be suitable to serve, thus giving less deference to the testator's selection. The court, on the other hand, believes that it is more important to remain deferential to the testator's choice and avoid eligibility hearings, except in rare cases.

Despite the amendment to SCPA 707(1)(e), courts continue to follow their traditional approach to determine when to impart discretion in ascertaining a nominated fiduciary's eligibility to serve.

New York courts have traditionally deferred to a testator's choice of fiduciary, so long as that person satisfies the statutory objective criteria of SCPA 707. Courts have only overridden the testator's selection, calling on one of the subjective criteria of SCPA 707(1)(e), when it was clear that the estate's assets or its administration would be endangered if Letters were granted to the named person. As far back as 1916, the Court of Appeals announced that "[the testator's] solemn selection [of executor] is not lightly to be disregarded[, and a]ppointment is not to be refused merely because the testator's selection does not seem suitable to the judge." Matter of Leland, 219 NY 387, 393 (N.Y. Ct. App. 1916). The Court indicated that it will not jeopardize the wishes of the decedent by liberally interpreting the statutory grounds for ineligibility. Id. at 393-94. Furthermore, the Court entrenched the notion that it will strive to be "hands off" in matters of appointment by stating that it will not add disqualifications to those specifically enumerated by statute. Id. at 393.

'Leland' and the Deference Position

Since Leland, courts have held true to the deference position. For example, in Matter of Rosenfeld the court noted that mere indebtedness to the estate does not disqualify one from serving as executor because owing a debt to the estate does not necessarily threaten the estate's assets or administration. 157 Misc. 686, 687 (Sur. Ct. New York County 1935). In so saying, the court indicated that deference to the testator's choice of executor is primary unless the executor is unable to properly administer the estate.

In Matter of Marsh, the court noted that the presence of a conflict of interest between the executor and the estate, or a party interested in the estate, did not warrant the denial of Letters. 578 NYS2d 911, 913 (N.Y. Sup. Ct. App. Div. 1st Dept. 1992). Simple conflicts of interest do not give rise to disqualification because courts presume that the decedent was aware of the conflict and chose to make the nomination anyway.³ However, courts have indicated that they would temper their deference if the conflict was so acrimonious as to interfere with a just administration of the estate.⁴

Thus, prior to the 1994 amendment, courts were striving to be as deferential to the testator's choice as possible and imparting discretion under SCPA 707(1)(e) only in the rare situation where the estate assets, or the administration thereof, was in jeopardy.

Despite the inclusion of the discretionary granting language, "or who is otherwise unfit for the execution of the office," into SCPA 707(1)(e), courts remain exceptionally deferential to the testator's choice of executor. However, the statute's amendment gives a court more flexibility in denying Letters where a situation warrants.

In Estate of Rad, the court noted that the amendment to SCPA 707(1)(e) was intended "to expand the possible bases on which denial of Letters might be grounded," 162 Misc2d 229, 231-34 (Sur. Ct. New York County 1994) (citing Second Report of EPTL-SCPA Legis. Advisory Comm., 1993 McKinney's Session Laws of N.Y., at 2240). Although isolated incidents of drunkenness, conflict of interest and unproved allegations of stealing were insufficient to disqualify a petitioner's appointment, the court did consider the contestants' allegations of severe hostility and acrimony between the proposed executor and the beneficiaries (siblings). While emphasizing that "such acrimony alone does not constitute grounds for disqualification as a fiduciary," the court nevertheless denied Letters, based on a pattern of behavior by the petitioner that rendered her "unfit for the execution of office."

It should be noted, however, that the petitioner was not a named fiduciary by the testator. Rather, the nominated fiduciary renounced and there was no provision in the will for a successor executor. The court seemed to be more comforted in its decision by the fact that while the testator wanted his children to share in his estate, he did not name any of them as executor. It is possible that the contestants' hurdle would have been higher had their sister been nominated under the will.

Friction or Antagonism

In Matter of Palma, the court indicated that "friction, hostility or antagonism between a fiduciary and beneficiaries can also disqualify the fiduciary, but only when such enmity threatens to interfere with the administration of the estate." 2007 N.Y. Slip Op. 3805*2 (N.Y. Sup. Ct. App. Div. 3rd Dept. 2007).

In this case, the court found that the named executor was unfit for the office of executor because of "conflict, divided loyalty, self interest and hostility." In denying Letters, the court specifically reasoned that the executor may have to collect assets from herself and this was deemed to be a conflict that threatened the administration of the estate. Id at *3 (noting that petitioner may, as executor be in the untenable position of having to collect from herself as personal guarantor).

In Matter of Anderson, the court noted that not only is the testator to be given deference as to his or her selection, but that the grounds by which the courts may disqualify are set by statute, suggesting that the court is not going to search for a reason to deny Letters. 2007 N.Y. Slip Op. 51202U*2-3 (Sur.Ct.DuchessCounty2007). In Anderson, the court overlooked the named executor's misdemeanor conviction for unlawfully receiving real estate settlement charges and granted Letters of administration. Id. As there was no pattern of dishonesty, the court held that he was not unfit for the office of executor because the one-time incident did not rationally suggest that the estate would be in jeopardy by granting him Letters. Id.

In Estate of Guldbrandsen, NYLJ, May 15, 2007 at 23, col. 3, the court refused to deny Letters to a nominated successor executor, who was close friends with the decedent's spouse (the spouse was indicted with her husband's murder and pleaded guilty to manslaughter). The court stated that a testator's selection of a fiduciary must be given great deference and that a potential conflict of interest, without actual misconduct, did not justify removal.

In Matter of Venezia, 784 NYS2d 925 (Sur. Ct. Kings County 2004), the Surrogate's Court granted a beneficiary's motion for summary judgment to disqualify a nominated executor based on hostility between the nominated executor (who had no interest in the estate), her counsel and the beneficiary, stating that the court was attempting to prevent eligibility contests.

The Second Department remitted the matter back to the Surrogate's Court for a hearing, stating that mere friction or hostility between the executor and the beneficiaries does not in itself warrant disqualification, although it agreed with the general policy of the Surrogate's Court to prevent contests. 2006 N.Y. Slip Op. 527*1-2 (N.Y. Sup. Ct. App. Div. 2nd Dept. 2006). On remand, and after a five-day hearing was held, the Surrogate's Court denied Letters.

The court reached its decision after conducting a full evidentiary hearing and observing the parties over many months of prehearing motion practice, finding that the "vexatious conduct of [the nominated executor's] counsel toward [the beneficiary]" and the excessive and hostile and bitter relationship between the nominated executor and the beneficiary, does not further the proper administration of the estate. The court emphasized the deference to be afforded to a testator's choice of fiduciary, but stated it could not be "at great expense to the overriding intention of decedent's testamentary plan . . . " and that it could not have been the decedent's intent "to see her entire fortune squandered on legal fees in order to vindicate the appointment of her choice of fiduciary" to the detriment of the estate.

Conclusion

Therefore, despite the Legislature giving the court more discretion by inserting into SCPA 707(1)(e) language with no discernible standards, courts have generally resisted using this new power, possibly because it could invite a floodgate of disqualification proceedings, even when there is only the slightest of issues between a beneficiary and a named executor, thus protracting the estate administration process. Instead, courts are sending a message that despite a potential fiduciary having less than ideal characteristics, the court is still going to resist a liberal interpretation of the statute's discretionary standard except in the most egregious of circumstances.

In practice the use of discretion remains the same: courts continue to give deference to a testator's choice of executor. The outcome is not as clear in an administration proceeding or in a situation where a nominated executor renounces and there is no provision for a successor. Perhaps in such situations courts will take a more liberal reading of the discretionary standards provided in the statute.

While not the focus of this article, it should be noted that in advising clients on how to select a fiduciary, the client should be reminded that this choice is the single most important decision that the testator must make. This decision affects the testator's testamentary plan as well as the proper administration of the estate. As Justice Benjamin Cardozo made clear, a fiduciary should be one worthy of the punctilio of honor.⁵

Endnotes:

1. See Peter C. Valente and Barbara L. MacGrady, "Standing to Protest Fiduciary Selection: Form or Essence?," NYLJ, May 21, 2007).

2. See In re Estate of Bashwinger, 92 Misc2d 716 (Sur. Ct. Albany County 1978) (suggesting that a prime concern of the Surrogate's Court is to ensure that estates are administered properly, quickly, and as inexpensively as possible).

3. See In the Matter of Foss, 125 NYS2d 105, 108 (N.Y. Sup. Ct. App. Div. 1st Dept. 1953) (indicating that the court deferred to the testator's choice to name as coexecutor an officer and director of a corporation which employed the testator for many years and which he was feuding with just prior to his death).

4. See Margaret Valentine Turano and C. Raymond Radigan, New York Estate Administration 505-06 (LexisNexis 2007).

5. Meinhard v. Salmon, 249 NY 458, 464 (1928).