Opinion
No. 2012–369167.
2013-04-9
In re the Proceeding of Mark MINESS and Stephanie M. Begnal, Beneficiaries of the Miness Family Insurance Trust, Petitioners, v. Francis W. DEEGAN and Saul Fenchel, as Trustees of the Miness Family Insurance Trust, Respondents, Pursuant to SCPA 2205 and 2206 seeking a Compulsory Accounting in connection with The Miness Family Insurance Trust.
Sexter & Warmflash, P.C., New York, for petitioners. Brosnan & Hegler, LLP, Garden City, for co-trustee.
Sexter & Warmflash, P.C., New York, for petitioners. Brosnan & Hegler, LLP, Garden City, for co-trustee.
Saul Fenchel, Esq., Garden City, pro se respondent.
EDWARD W. McCARTY III, J.
In this compulsory accounting proceeding, the petitioners, Mark Miness and Stephanie M. Begnal, filed a petition seeking to compel an accounting by both Saul Fenchel and Francis W. Deegan, as trustees of the Miness Family Insurance Trust. Francis W. Deegan has filed an account of his proceedings as co-trustee of the trust. Saul Fenchel, who resigned as a co-trustee on November 12, 2009, has filed an answer opposing the application for his accounting. For the reasons that follow, the application to compel an accounting by Saul Fenchel through the date of his resignation is granted.
The Miness Family Insurance Trust (hereinafter “the trust”) was created under Trust Agreement dated October 10, 1988 by Michael D. Miness, as settlor, and Francis W. Deegan and Saul Fenchel, as trustees. The trust, which is irrevocable, was apparently funded with life insurance. The express purpose of the trust is to provide for the settlor's spouse and descendants. The petitioners are the settlor's children. Pursuant to the terms of the trust, during the settlor's life, yearly withdrawals of defined amounts may be made by each of the settlor's descendants, presumably to allow additions to the trust made to pay life insurance premiums to qualify for the annual gift tax exclusion by virtue of the Crummey power. In addition, the trustees may make discretionary distributions for any one or more of the settlor's descendants for health, support, maintenance and education. The settlor is alive. The petitioners are the only descendants of the settlor.
Saul Fenchel resigned as a co-trustee on November 12, 2009. Francis W. Deegan filed an account of his proceedings as trustee for the period October 10, 1988 through August 31, 2012. Mr. Fenchel asserts that he does not have to account because he resigned as a trustee and petitioners have no standing to demand an accounting pursuant to the terms of the trust.
Article 8 of the Trust Agreement provides as follows:
“ACCOUNTING, RECORDS AND SUPERVISION OF TRUSTEES
8.1 Annual Accounting. During the life of the Settlor, the Trustees shall render an accounting at least annually to the Settlor with respect to assets in the Trust ... Upon the death of the Settlor, the Trustees shall render at least annually during the term of the Trust to all adult income beneficiaries and any court-appointed personal representatives of any minor or incompetent income beneficiaries of the Trust, a statement of accounts showing in detail, receipts, disbursements, and distributions of both principal and income of the Trust Property....
8.2 Records of Trustees. The records of the Trustees shall be open at all reasonable times to the inspection of the Settlor and, upon the death of the Settlor, to any beneficiary of the trust entitled to an accounting under this Trust Agreement, or to the court-appointed personal representatives of such beneficiary.
8.3 Court Supervision. No accounts need be filed in any court by any Trustees, and none of the trusts created hereunder need be submitted to the jurisdiction of any court, but the Trustees or beneficiaries are not prohibited from obtaining court adjudication of any of the Trustees' accounts, requesting court instructions, or submitting a dispute to an appropriate court.”
With regard to testamentary trusts, the law is well-settled that a provision excusing a trustee from accounting violates public policy and, is therefore, invalid (Matter of Kassover, 124 Misc.2d 630, 476 N.Y.S.2d 763 [Sur Ct, Nassau County 1984] ). The grantor of an inter vivos trust, however, may limit the rights of beneficiaries to compel an accounting. It has consistently been held that “[w]here a party has no pecuniary interest in a revocable trust until the settlor's death, such party would have no right to an accounting thereof” ( Matter of Piecuch Trust, 2006 N.Y. Misc. Lexis 631 [Sup Ct, Suffolk County 2006], see also Matter of Central Hanover Bank & Trust Co., 176 Misc. 183, 26 N.Y.S.2d 924 [Sup Ct, New York County 1941], affd263 App.Div. 801, 32 N.Y.S.2d 128 [1st Dept 1941], affd288 N.Y. 608 [1942] ) In Matter of Kassover (124 Misc.2d 630, 476 N.Y.S.2d 763 [Sur Ct, Nassau County 1984] ), this court recognized, however, the difference between requiring that the trustee account to only a settlor and a situation where the trustee is not accountable to anyone at all (Matter of Kassover, 124 Misc.2d 630, 476 N.Y.S.2d 763 [Sur Ct, Nassau County 1984] ). For example, where the settlor is the trustee and the trust instrument provides that the trustee is accountable only to the settlor (himself), the settlor would essentially be accountable to no one.
In addition, the statute of limitations for an accounting proceeding against a trustee is governed by CPLR 213(1) which lists “an action for which no limitation is specifically prescribed by law” among those actions that “must be commenced within six years.” The statue of limitations on a compulsory accounting runs from the time the fiduciary clearly repudiated his duties (Matter of Barabash, 31 N.Y.2d 76 [1972];Tydings v. Greenfield Stein & Senior, 11 N.Y.3d 195 [2008] ). The running of the statute of limitations begins when “the trust relation is at an end, and the trustee has yielded the estate to a successor” (Tydings v. Greenfield Stein & Senior, 11 N.Y.3d 195 [2008] [ quoting Spullholz v. Sheldon, 216 N.Y. 205 [1915] ). Thus, the six-year limitations period starts running at the time of resignation, which constitutes a clear repudiation of the trustee's duties.
Here, the petitioners, by virtue of the withdrawal power, and as permissible beneficiaries of discretionary distributions, both in effect while the settlor is alive, have a pecuniary interest in the trust as distinguished from those cases where only the settlor has an interest during his lifetime. If Mr. Fenchel only had to account to the settlor and the settlor lived six years beyond the date of Mr. Fenchel's resignation, Mr. Fenchel would be able to escape any liability to the petitioners. As this court sated in Matter of Kassover (124 Misc.2d 630, 632, 476 N.Y.S.2d 763 [Sur Ct, Nassau County 1984] ), “[a]n essential element of a trust is accountability of the trustee for his administration. Once a valid trust is created accountability must inevitably follow as an incident.”
By virtue of their current pecuniary interest in the trust and the fact that the statute of limitations against Mr. Fenchel may expire while the settlor is still alive, the court grants petitioners' application to compel Saul Fenchel to account. Mr. Fenchel shall file an account of his proceedings as co-trustee for the period October 10, 1988 through November 12, 2009, the date of his resignation, and petition for its judicial settlement within forty-five (45) days of the date of this decision.
This constitutes the decision and order of the court.