Opinion
No. 2010–382/G.
2013-02-19
In the Matter of the Application for Advance Payment of Elective Share and to Turn Over Exempt Property pursuant to SCPA 2102 in the ESTATE OF Theodoros ZAHAROPOULOS, a/k/a Theodore Zaharopoulos, Deceased.
T. Randolph Harris, Esq., Renee R. Roth, Esq., Barbara A. Sloan, Esq., Attorneys for Petitioner. Harvey E. Corn, Esq., Angelo M. Grosso, Esq., Attorneys for Respondent.
T. Randolph Harris, Esq., Renee R. Roth, Esq., Barbara A. Sloan, Esq., Attorneys for Petitioner. Harvey E. Corn, Esq., Angelo M. Grosso, Esq., Attorneys for Respondent.
PETER J. KELLY, J.
In this proceeding commenced pursuant to SCPA 2012[5] and EPTL 5–3.1, the Petitioner seeks an advance payment of a portion of her elective share of the estate as well as an order directing the turnover of her exempt property. The Petitioner, Marouli Karouni–Zaharopoulos, was the Decedent's wife when he died on January 16, 2010. The Decedent was also survived by four issue, who were Aristidis Zaharopoulos, Eleni Zaharopoulos, Aristea Zaharopoulos and Niki Zaharopoulos. Aristidis, Eleni and Aristea are the Decedent's adult children with his first wife, Eugenia Zaharopoulos. Niki, an infant, is the Decedent's child with the Petitioner.
Decedent died testate with testamentary instruments in the United States and in Greece. The United States will was admitted to probate by a decree of this court dated November 24, 2010 and the Decedent's son Aristidis was granted letters testamentary. According to the parties, the instrument in Greece is still the subject of litigation. No provision was made for the Petitioner in the Decedent's United States will, and as a result, the Petitioner exercised her right of election pursuant to EPTL 5–1.1–A. Respondent does not dispute the Petitioner's status as the Decedent's surviving spouse and acknowledged her right to elect against the Decedent's estate.
A prior proceeding to pay Petitioner an advance on her elective share was brought during the period when Aristidis had preliminary letters and was settled by the parties on September 2, 2010. As part of that agreement the Petitioner received $275,000.00. As the parties were unable to reach a similar accommodation in the present proceeding, a trial of the issues raised in the petition was held.
At the trial, the court heard testimony from the Petitioner and the Respondent. Additionally, numerous documents, including a 2011 New York State Estate Tax return, were admitted in evidence. The New York State return included, as an attachment, a copy of a Federal 706 Estate Tax Return. The court also granted the parties' request to submit post-trial memorandums of law.
Subsequent to the submission of these briefs, the court scheduled and held several settlement negotiations with the parties' counsel, and counsel engaged in numerous discussions independently including involvement of counsel in Greece. However, despite significant efforts, a resolution could not be achieved. Respondent's counsel thereafter notified the court in a writingdated February 5, 2013 that the parties wished the court to issue its decision.
Accordingly, based upon the testimony and exhibits received in evidence, as well as the post-trial memorandums of law, the court makes the following findings of fact and conclusions of law:
The Petitioner in this matter bore the burden of establishing the statutory requisites necessary to justify an advance payment of her elective share from the assets of the estate. Section 2102[5] of the Surrogate's Court Procedure Act provides that an advance of “all or part of any beneficial interest” may be paid “when the property of the estate applicable to the payment of debts, legacies and expenses exceeds by at least one-third the amount of all known claims, legacies having priority and beneficial interests of the same class and the beneficiary needs such payment for his support or education or of his family.” In this proceeding the court is given broad latitude by statute and “may grant appropriate relief, grant or deny the relief in whole or in part upon such terms as it deems proper and make such decree or order as justice shall require and may require a refunding bond” (SCPA 2101[4] ).
On the issue of the Petitioner's need for the advance distribution for her support or that of her child, the court is persuaded that the Petitioner has sufficiently demonstrated the requisite need under the circumstances based upon her testimony at trial. The court does not find the absence of corroborating documentation on this issue to be significant in this case, especially considering that the Respondent submitted neither testimonial nor documentary evidence to contradict the Petitioner's claim on the issue of financial need. That the Petitioner may have access to certain financial resources, including real property and an inter vivos trust established by the Decedent for their child Niki, does not disqualify her from receiving an advance distribution under SCPA 2102[5] ( See, In re Estate of Goldman, 150 A.D.2d 267).
The parties disagreed significantly on the amount of “the property of the estate applicable to the payment of debts, legacies and expenses” and utilized disparate approaches in calculating this total. Nevertheless, both parties relied primarily upon the data contained in the New York State Estate Tax Return and the annexed Federal Estate Tax Return.
Since the decedent died in 2010, no Federal Estate Tax Return was required and, therefore, that return was prepared, but not filed with the Internal Revenue Service.
The Petitioner, for her part, asserted that the sum that should be used in the calculation of “the property of the estate applicable to the payment of debts, legacies and expenses” under SCPA 2102[5] is $8,598,892.73. To arrive at this figure Petitioner began her calculation with the sum of $21,002,421.21 which is the amount of the total gross estate contained in the estate tax return. From this amount Petitioner deducted the sums of $12,929,813.28 and $933,715.20, which are the values claimed in the estate tax return, respectively, for the Decedent's real estate holdings in Greece and life insurance proceeds, leaving a balance of $7,138,892.73.
It appears, for convenience, the Petitioner rounded her dollar amounts and calculations to the nearest dollar. The court, however, will use actual amounts when referring to the Petitioner's arguments.
It is then posited that this sum should be increased by $1,460,000. Firstly, the Petitioner contends that $460,000.00 should be added to this sub-total to reflect a more accurate value of the estate's interest in Zavas Realty Corp. (“Zavas”). In support of her claim that such interest should be increased, the Petitioner alleges that the written appraisal report annexed to the estate tax return undervalues a parcel of real property in Long Island City, New York owned by Zavas, by $2,000,000.00. This claim, however, is speculation as it is unsupported by any appraisal to the contrary and is insufficient in this proceeding ( See, In re Ehmer, 272 A.D.2d 542).
Moreover, Petitioner's assertion that the amount of income generated by this parcel of real property increased after issuance of the appraisal is not established by the evidence adduced at trial. In this regard, the Petitioner argues that the value of the Long Island City property must be higher than the $1,000,000.00 value used by the business appraiser since, based on the Respondent's testimony, the monthly income from an option to purchase the property increased from $25,000.00 to $50,000.00. Contrary to the Petitioner's assertion, her testimony fails to establish the appraisal does not take this additional income into consideration. In the first instance, since a real estate appraisal report was not provided to the court, no proof exists in the record concerning what the real estate appraiser considered in making the subject valuation. Additionally, the report of the business appraiser indicates that the valuation date for the Long Island City property was November 20, 2008 and the Respondent testified that he believed that the amount of the option increased to $50,000.00 in 2008, returned to $25,000.00 “at some point” and most recently increased to $50,000.00 in either February 2011 or 2012.
With respect to the Petitioner's argument that the expert appraiser's application of discounts for lack of control and marketability when assessing the value of the estate's interest in Zavas were inappropriate, the Petitioner did not submit any evidence, expert or otherwise, to contradict these determinations. The naked assertion of this argument in a post-trial memorandum is insufficient to satisfy the Petitioner's burden of proof in this regard.
Petitioner also asserts that “the property of the estate applicable to the payment of debts, legacies and expenses” should include an additional $1,000,000.00 which she claims is a “conservative estimate” of the Decedent's unreported income and foreign bank accounts. This estimate is, similarly, nothing more than inadequate speculation ( See, In re Ehmer, supra). Her contention that the Respondent's failure to provide “concrete information” was the cause of her inability to establish a finite amount is unavailing as the Respondent's recalcitrance, if any, in supplying discovery on this issue could have been remedied by appropriate motion.
Accordingly, since the Petitioner failed to sufficiently demonstrate that an additional $1,460,000.00 is justifiably the property of the estate applicable to the payment of debts, legacies and expenses, the Petitioner's proof on this issue constitutes $7,138,892.73.
For his part, the Respondent argues that the property of the estate applicable to the payment of debts, legacies and expenses to be $3,544,721.38. In the Respondent's estimation, this amount is comprised of the value of the estate's 10% interest in Zavas ($311,000.00), the value of two promissory notes given by the Respondent to the Decedent ($967,749.83 and $2,155,153.70), the estate's 100% interest in Lifestyle Furniture, Inc. ($4,277.00) and the value of miscellaneous property which was specifically itemized in schedule F of the Federal form 706 ($106,540.85). All the foregoing figures were taken from the estate tax returns that were admitted into evidence.
Although the Respondent stated this amount to be $3,544,631.38 in his memorandum of law, it appears that number is arithmetically incorrect.
The difference between the figure established by the Petitioner and sum submitted by the Respondent is $3,594,171.35. When this number is cross-referenced with the estate tax return, including the Federal form 706, and the parties' analyses in their memorandums of law, it is apparent that there are only two of the Decedent's assets which the parties disagree as to the inclusion in the property of the estate applicable to the payment of debts, legacies and expenses.
The first asset is a 49% interest in American Home Corporation (“American Home”) valued in schedule B annexed to the Federal form 706 at $2,356,149.56. The other asset is the value of the Decedent's inter vivos transfers on April 28, 2009 of certain real estate holdings into the Theodore Zaharopoulos Irrevocable Trust listed in schedule G annexed to the Federal form 706 as $1,238,021.79.
With respect to American Home, the evidence introduced at trial indicated that it is a closely held corporation established in Greece. In schedule B annexed to the Federal form 706 it states that this “corporation's primary business is the design and manufacture of furniture” and that it also owns other business and real estate holdings in Greece. The Respondent testified at trial that the value of American Home was taken from a document issued by Greek taxing authorities and was not an independent valuation obtained by the Respondent. He also testified that the Decedent's ownership interest in American Home is the subject of litigation in Greece between the parties to this proceeding.
No express argument as to why the Decedent's interest in American Home should be included in the property of the estate applicable to the payment of debts, legacies and expenses is made in Petitioner's memorandum of law. On the other hand, Respondent also does not refer to American Home specifically, but argues generally that all the assets not included in his calculation are “Greek assets” which he has no power to marshal or distribute and are not subject to the jurisdiction of this court.
A review of the court file revealed that the inventory of assets filed on behalf of the fiduciary pursuant to Uniform Rule § 207.20 includes the shares of American Home among the assets claimed to be individually owned by the decedent or payable to the estate, rather than a non-probate asset. This is consistent with the broad definitions of “estate” contained in EPTL 1–2.6[b] and SCPA 103[19] which refer to an estate as encompassing the “aggregate” and “all” of the property of a decedent, respectively. Moreover, EPTL 13–1.3 [a], which defines “[a]ssets chargable with the payment of estate obligations”, states that “[a]ll the of the property of a decedent ... is chargable with the payment of ... [1] Administration and reasonable funeral expenses, debts of the decedent and any taxes for which the estate is liable.”
The Respondent's contention that the shares of American Home are not part of this estate or subject to the jurisdiction of this court because they are shares of a Greek Corporation is erroneous. Shares of stock in a corporation are undisputably personality (In re Estate of Jones, 172 N.Y. 575, 584) and the determination of the validity or effect of testamentary dispositions of personal property “are determined by the law of the jurisdiction in which the decedent was domiciled at death”, which in this case is New York State ( See,EPTL 3–5.1[b][2] ).
Therefore, the court finds the Decedent's shares of stock in American Home are “property of the estate applicable to the payment of debts, legacies and expenses”.
As to the Decedent's inter vivos transfer of real estate valued at $1,238,021.79 to the Theodore Zaharopoulos Irrevocable Trust, the Petitioner argues that this sum should be included as property of the estate applicable to the payment of debts, legacies and expenses since the Decedent retained a life interest in the trust. While this fact is relevant for purposes of determining whether a surviving spouse may assert a right of election against a trust as a testamentary substitute (EPTL 5–1.1–A [b][1][F] ), the Petitioner has failed to establish how the foregoing makes property that the Decedent unquestionably did not own at the time of his death property of the estate for the purpose of this proceeding ( See,EPTL 1–2.6[b]; SCPA 103[19] ). The real property that was transferred into the trust and any life interest the Decedent had in the trust obviously expired upon his death. In addition, pursuant the terms of SCPA 2102[5], this property would not fit within the definition of estate property since, although it may be applicable to the payment of estate taxes, it is certainly not accessible to satisfy legacies under the will. Therefore, the Decedent's inter vivos transfer to the Theodore Zaharopoulos Irrevocable Trust is not property of the estate applicable to the payment of debts, legacies and expenses.
Based on the foregoing analysis, the property of the estate applicable to the payment of debts, legacies and expenses is found to be $5,900,870.94.
In order to justify an advance distribution, the Petitioner was required to proffer sufficient evidence that the above total exceeded “by at least one-third the amount of all known claims, legacies having priority and beneficial interests of the same class”. Since there are no legacies with priority or equality to the Petitioner's right of election, it is only the claims against the estate that must be considered in this proceeding.
The Respondent asserts that the debts, legacies and expenses of the estate total $6,174,141.76. As to be expected, the Petitioner contends they are less. By far, the largest expense the parties dispute are the decedent's Federal and New York State tax liabilities. Relying on the calculations made in the estate tax return placed into evidence, the Respondent asserts that these liabilities total $4,737,119.00. The Petitioner argues that the estate should expect a “substantial reduction” in these tax liabilities and, therefore, the court should reduce the $4,737,119.00 estimated tax liability to $3,500,00.00. This argument is not supported by any evidence, expert or otherwise. Indeed, in the Petitioner's memorandum of law it is acknowledged that this reduction is mostly speculative. Absent this reduction, the estate assets would have to exceed approximately $8,232,189.00 to qualify for an advance distribution.
However, even utilizing the figures set forth in the Petitioner's memorandum of law, it is conceded that the estate has claims against it totaling $5,050,000.00. Hence, based on the Petitioner's figures, the estate assets would have to exceed $6,733,333.32 to qualify for an advance distribution under the express terms of SCPA 2102[5]. Plainly, based on the evidence adduced at trial and the court's analysis herein that “property of the estate applicable to the payment of debts, legacies and expenses” totals $5,900,870.94, the statutory requisite on this point has not been met.
Accordingly, the branch of the petition seeking an advance distribution pursuant to SCPA 2102[5] is denied.
The branch of the petition directing the executor to turnover to the Petitioner exempt property as defined in EPTL 5–3.1 is granted.
While the above analysis disposes of the instant proceeding, the court is troubled by the lack of clarity in the testimony from the fiduciary of the estate in this matter concerning the nature and extent of the Decedent's assets and unreported income, both here and abroad. Given the procedural history of this matter, the court is also concerned that the fiduciary's status as a multi-million dollar debtor to an illiquid estate could be contributing to some of the delays experienced in finalizing the administration of the New York portion of this estate and the status of the real estate assets under his control. Accordingly, the court, sua sponte, directs Aristidis Zaharopoulos to file his account, petition for its judicial settlement and cause a citation to issue to the interested parties within 60 days of the date of the Decree to be settled hereon ( See,SCPA § 2205).
Settle Decree.