Opinion
Index No. EF2023-71534
06-14-2024
William C. Waddell and KATHLEEN WADDELL JOHNSON, as Successor Trustees of the GHW Irrevocable Trust, Plaintiffs, v. John W. Boyea, Individually and as Executor of the Estate of Melinda L. Waddell, Deceased, Defendant.
McPhillips, Fitzgerald & Cullum LLP, Glens Falls (Dennis J. Phillips of counsel), for plaintiffs. Costello, Cooney & Fearon, PLLC, Syracuse (Robert W. Connolly and Sahana Ramdas of counsel), for defendant.
Unpublished Opinion
McPhillips, Fitzgerald & Cullum LLP, Glens Falls (Dennis J. Phillips of counsel), for plaintiffs.
Costello, Cooney & Fearon, PLLC, Syracuse (Robert W. Connolly and Sahana Ramdas of counsel), for defendant.
Martin D. Auffredou, J.
Motion by plaintiffs for summary judgment on the complaint, which seeks, among other things, rescission of a transfer of trust property.
This litigation involves the GHW Irrevocable Trust, a trust created by Grace H. Waddell (hereinafter Grace) during her lifetime (hereinafter, the "main trust"), acting through her court appointed guardian, her daughter Melinda L. Waddell (hereinafter Melinda). Melinda was named trustee of the trust, which named Grace's children-Melinda and plaintiffs William C. Waddell and Kathleen Waddell Johnson (hereinafter William and Kathleen, respectively, or, collectively, plaintiffs)-as its primary beneficiaries. William and Kathleen were appointed successor trustees in the event that Melinda should cease to serve. The corpus of the trust was title to 10 parcels of land in the Towns of Chester and Johnsburg, Warren County, which together comprise the Waddell Farm (hereinafter, "the farm" or "the trust property").
When Grace thereafter passed away, the whole of the trust principal (i.e., the farm) remained in the trust. The trust agreement directed, among other things, that, upon Grace's death, the trustee, who was still Melinda at the time, was to divide the remaining trust property into equal shares, one for each of Grace's children, and administer each share in a separate trust-what the court shall herein refer to as a "subtrust"-for each child. The date of Grace's death is not reflected in the record before this court but it appears that none of the subtrusts directed in the trust agreement were created immediately thereafter. Indeed, there is no evidence before the court that any subtrust but the one for Melinda has yet been established. It is this subtrust that is involved here. Specifically at issue is the transfer of Melinda's share of the farm out of it.
The trust agreement provided that the distribution of the income and principal of a subtrust to the beneficiary thereof shall be as the trustee determined was "necessary or advisable for [the beneficiary's] health, education, maintenance or support" (hereinafter "HEMS purposes"). As guidelines for the exercise of the trustee's discretion with respect to such distributions, Grace set forth that it was her "desire to provide for [the beneficiary's] well-being and happiness." She "request[ed] that [her] Trustee be liberal in making [such] distributions" and acknowledged that the principal of a subtrust could be exhausted by them. The trust agreement further provided that the primary beneficiary of a subtrust could appoint himself or herself as trustee thereof with another person or entity to act as cotrustee. The cotrustee could not be "related or subordinate" to the appointing trustee/beneficiary, as that term is defined in Internal Revenue Code (26 USC) § 672 (c), and the cotrustee's powers could not exceed those of the appointor.
The trust agreement also made provision for the disposition of assets remaining in a subtrust upon the death of its beneficiary. Each beneficiary held a testamentary limited power to appoint all or any portion of such of the trust property that remained in his or her subtrust at his or her death among Grace's descendants, but such could not be appointed to the beneficiary or his or her estate. Such portion of the principal and income that remained unappointed was to be distributed to the beneficiary's descendants and, if there were none living, then distribution to Grace's descendants was directed. Further provision for the distribution of remaining principal and interest in the event that Grace had no descendants was also made in the trust agreement.
The trust agreement defines Grace's descendants as her children and her children's descendants.
Melinda and defendant John Boyea (hereinafter John or defendant) were unmarried, cohabitating paramours who were together as a couple for over 20 years. Melinda had no descendants. On or about December 15, 2021, while still acting trustee of the main trust, Melinda was diagnosed with terminal, stage-four cancer. On February 18, 2022, Melinda, acting as trustee of the main trust, executed a contract for the sale of the farm to John, the consideration to be paid being $738,850 with no downpayment required. Her attorney for this transaction reports that she so contracted because she did not want to burden John "with the intensive medical care and support she anticipated facing due to her battle with cancer." However, when Melinda learned that a closing of that transaction could not occur for over a month, she remained concerned that John would be so burdened. Ostensibly, therefore, Melinda knew that the time remaining in her life was short. Melinda therefore created her subtrust pursuant to the provisions of the trust agreement and, on February 26, 2022, conveyed by deed a ⅓ interest in the farm from herself as trustee of the main trust to herself and John as cotrustees of her subtrust. Concomitantly with this transfer, Melinda executed two more deeds in which she and John, as cotrustees of her subtrust, conveyed the ⅓ interest out of the subtrust to herself, individually, and then, for no consideration, conveyed that interest from herself individually to herself and John as joint tenants with rights of survivorship.
Melinda died three weeks later, on March 19, 2022, causing William and Kathleen to become successor trustees of the main trust pursuant to the trust agreement. The deeds had not been recorded at the time, and William and Kathleen had no notice of the transfer, the creation of Melinda's subtrust or John's appointment as cotrustee thereof. The three deeds were recorded nine days after Melinda's death, on March 28, 2022. Plaintiffs thereafter commenced suit, seeking the court's interpretation of the relevant provisions of the trust agreement, and an order rescinding and nullifying the second and third deeds that resulted in the transfer of the principal of Melinda's subtrust to Melinda and John as joint tenants. Defendant has joined issue, and William and Kathleen now move as aforesaid.
Upon consideration of the affirmation of Dennis J. Phillips, Esq., dated November 1, 2023, with exhibits; the affidavit of William C. Waddell, sworn to October 12, 2023; the affirmation of Robert W. Connolly, Esq., dated February 2, 2024, with exhibits, which include an affirmation of Edgar S. K. Merrell, III, counsel to Melinda and John with respect to the main trust and subtrust, and an affirmation of John W. Boyea, with exhibit, both dated January 24, 2024; defendant's memorandum of law in opposition, dated February 2, 2024; and the reply affirmation of Dennis J. Phillips, Esq., dated February 14, 2024, with exhibits, decision is hereby rendered as follows.
"'To obtain summary judgment it is necessary that the movant establish his [or her] cause of action or defense sufficiently to warrant the court as a matter of law in directing judgment in his [or her] favor'" (Zuckerman v City of New York, 49 N.Y.2d 557, 562 [1980], quoting Friends of Animals v Associated Fur Mfrs., 46 N.Y.2d 1065, 1067-1068 [1979] [internal citation and quotation marks omitted]; accord CPLR 3212 [b]). Where such burden is met, summary judgment is appropriate unless the proof mustered before the court reveals a material question of fact requiring a trial (see Stanhope v Burke, 220 A.D.3d 1122, 1123 [3d Dept 2023]).
Preliminarily, as defendant points out, plaintiffs' motion seeks summary judgment declaring all three of the subject conveyances null and void, whereas the complaint seeks that relief only as to the second and third transactions. Plaintiffs' claim for relief with respect to the first transfer-from the main trust to Melina's subtrust-is thus not properly before the court on this motion because it is not sought in the complaint. In any event, there does not appear to be any genuine dispute that the creation of Melinda's subtrust and the transfer of her interest in the trust property into it were in accord with the directives of the trust agreement, though plaintiffs have raised a question about John's qualification to serve as cotrustee thereof. Defendant also points out that the third transaction-from Melinda individually to herself and John as joint tenants-occurred outside the trust agreement's governance and could not, therefore, have been undertaken in breach thereof.
The court finds that no determination regarding the first transaction is necessary to its disposition of this motion or affording the relief that it finds warranted herein. Rather, this case turns, in the first instance, upon the validity of the second conveyance-from Melinda and John as cotrustees of Melinda's subtrust, to Melinda individually-and a determination of whether the third transaction is valid would be necessary only if the second transaction were held to be valid. If such were the case, it would be because the second transaction conformed to the trust provisions and whatever limitations on the transfer were presented thereby. The interests of the trust and its successor trustees in ensuring that Grace's intent was carried out would thus have been adjudicated. It would then be necessary to reach defendant's point that Melinda's transfer of property that she properly obtained in her individual capacity would not have been governed by the trust agreement's provisions.
Conversely, if the second transaction is held to be invalid, then there was no valid interest for Melinda to convey to herself and John as joint tenants in the third transaction. In other words, the third transaction would fail by extension and be void irrespective of whether the trust agreement governed it because there would have been no valid title for Melinda to transfer, and the court would therefore not need to decide the question raised by defendant with respect to the third transaction. Similarly, if the second transaction were held to be invalid, the question of John's qualifications to serve as cotrustee of Melinda's subtrust as it pertains to the validity of the subtrust's receipt of the deed in the first transaction would be moot, since the trust agreement calls for reversion of the undistributed income and principal therein to the main trust for the benefit of Grace's living descendants, i.e., William and Kathleen, under the circumstances presented here.
Turning, then, to the second transfer, that being the one that removed trust property from Melinda's subtrust and vested it in her individually, plaintiffs attack its validity on three grounds-that John was not qualified to serve as cotrustee, that the transfer was not for HEMS purposes, and that the transfer was contrary to Grace's intent to keep the farm in her line of descent; the latter two arguments being hinged on plaintiffs' claim that the purpose of the transfers was to benefit John, not Melinda. "'[I]t is well settled that a trust agreement is to be construed as written and the grantor's intention determined solely from the unambiguous language of the instrument itself'" (Matter of Hoover, 182 A.D.3d 685, 687 [3d Dept 2020], quoting Matter of Joan Moran Trust, 166 A.D.3d 1176, 1178 [3d Dept 2018] [internal quotation marks, brackets and citations omitted]; see Golden Gate Yacht Club v Société Nautique de Genève, 12 N.Y.3d 248, 255 [2009]). Determining the construction to be given to the provisions of a trust agreement is a matter of law (see Golden Gate Yacht Club, 12 N.Y.3d at 256).
Plaintiffs' argument that John was not duly qualified to act as cotrustee of Melinda's subtrust because they were not provided written notice of his appointment as required by section 2.04 of the trust agreement was raised for the first time in reply and is therefore not properly before the court. Plaintiffs have, however, properly asserted their argument that John was not qualified to serve as cotrustee of Melinda's subtrust because he was "related or subordinate" to her insofar as he was an "adverse party" to the trust. These terms are particularly defined in Internal Revenue Code (26 USC) § 672 and, upon the court's review of those definitions, it appears that plaintiffs have misconstrued them. Internal Revenue Code (26 USC) § 672 (c) defines a "[r]elated or subordinate party," in the first instance, as a "nonadverse party." Thus, by arguing that John is an adverse party, plaintiffs have implicitly argued that he is not "related or subordinate." In any event, it does appear from the undisputed facts herein that John is a "nonadverse party." Internal Revenue Code (26 USC) § 672 (b) defines that term as "any person who is not an adverse party." In turn, Internal Revenue Code (26 USC) § 672 (a) defines an adverse party, as "any person having a substantial beneficial interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he [or she] possesses respecting the trust." John is not such a person (see Duffy v United States, 487 F.2d 282, 288 [6th Cir 1973]). Nor does it appear, however, that John is a related or subordinate party, notwithstanding his nonadversity, insofar as he was neither Melinda's "spouse if living with the grantor" nor Melinda's "father, mother, issue, brother or sister; an employee of [Melinda's]; a corporation or any employee of a corporation in which the stock holdings of [Melinda] and the trust are significant from the viewpoint of voting control; [or] a subordinate employee of a corporation in which [Melinda was] an executive" (Internal Revenue Code [26 USC] § 672 [c] [1], [2]). That Melinda and John were undisputedly in a long-term committed relationship is of no moment to this analysis, as it is also undisputed that they were not married.
Relatedly, the parties appear to dispute whether John was limited by the trust provisions requiring that distributions from Melinda's subtrust be for HEMS purposes, insofar as they dispute whether John was an "interested trustee" or an "independent trustee." While it does appear from the undisputed facts before the court that John was not an interested cotrustee, the court needs not decide that question since, regardless of his independence, section 2.05 of the trust agreement restricts his powers as cotrustee of Melinda's subtrust to those that Melinda would be able to exercise, herself. Melinda, as beneficiary of the subtrust, had only the discretion to make distributions of trust principal to herself for HEMS purposes under sections 4.02 (a), and was unquestionably an interested trustee under section 10.05 (j) (1) of the trust agreement and her discretion was also thusly limited by section 9.23 (a) of the trust agreement. Indeed, John's discretion was also arguably directly limited in this way by section 4.02 (a) and it bears noting that Melinda was a cotrustee who participated in the transfer of trust property out of the trust to herself individually and did so as an interested trustee. In any event, the court concludes that, to be valid, such transfer must have been for Melinda's HEMS purposes.
As to that question, the court finds that the proof mustered before it leaves no question of fact that the transfer of trust property from Melinda's subtrust to Melinda individually-what the court and parties have referred to as the second transfer, second deed, or second conveyance-was not for HEMS purposes, and was therefore invalid (see Zuckerman v City of New York, 49 N.Y.2d at 562; Stanhope, 220 A.D.3d at 1123). Though the court declines plaintiffs' invitation to apply the so-called "step transaction doctrine," insofar as it was unable to find any case in which that doctrine was applied outside of the tax law context, the principles underlying it remain compelling (see Gregory v Helvering, 293 U.S. 465, 469-470 [1935]). The transfers, as a set, and the third transaction in particular, even though it is arguably not specifically up for adjudication under the terms of the trust agreement, are nonetheless strong evidence of the intents and purposes behind the making of the second transaction. The second transaction was undertaken concomitantly with the other two as part and parcel of a series of conveyances that, together, unquestionably reflect Melinda's intent to vest title to her share of the farm in John.
Defendant goes to great lengths in his papers to highlight the severity of Melinda's cancer and the gravity of her circumstances, and to point out that Melinda desired these transfers, among which was the second transfer, so that the trust property would be available to provide for her healthcare and support, so as to avoid burdening John with those concerns. While this argument is facially sympathetic, its appeal remains superfluous because a demonstrable nexus between the transfer of trust property to Melinda individually and those stated purposes remains lacking from the proof and, indeed, defendant's arguments. John, himself, avers that he and Melinda retained their financial independence throughout their relationship, and they were not married, yet he offers no explanation of how he might be burdened by the cost of Melinda's healthcare. He offers no response to plaintiffs' argument that the transfer of an undivided ⅓ interest in the farm-a non-income producing property-could not readily be made to yield funds for the purposes that he identifies. It seems to the court that, if Melinda's life expectancy was too short to admit of a sale of her interest to John, it was also too short for she and John, to market and sell the property to a third party, or to close on a mortgage upon their interest, so as to generate funds to pay for her healthcare and support during her life. Even overlooking this inconsistency, given John's power of attorney over Melinda, which plaintiffs proved him to have in reply to his arguments, the third transaction would have been unnecessary if the second transaction was, indeed, for HEMS purposes, since John could simply dispose of her individual interest in his agency capacity to satisfy those needs. Thus, the third transaction, which purported to convey a joint tenancy to him, could only have been for the purpose of ensuring that he had title to Melinda's share of the trust property after her imminent death. The court is compelled to note in this regard the passing of three weeks' time between the execution of the three deeds involved here and their filing in county records, at a time that postdated Melinda's death and John's assuming full title to her share of the farm pursuant to those deeds; and the failure of Melinda, or John on her behalf, to notify William and Kathleen of John's appointment as cotrustee of her subtrust.
The second transfer-of trust property out of the subtrust to Melinda individually-occurred not because it was for the purpose of Melinda's healthcare or support, but simply because Melinda wanted John to have her share of the farm. This finding is supported by a text message from her that plaintiff provided, in which she essentially states as much. It is also supported by the affirmation of her counsel with respect to the transfers, wherein he avers that Melinda wanted her share of the trust to "be preserved [for] ultimate disposition as part of her individual estate plan," under which, plaintiffs have shown, John was the primary beneficiary, as well as executor of her will.
In other words, these transfers, including the second one, were for the purpose of making Melinda happy in her final days by ensuring that her fiancé and long-time committed partner shared in her mother's trust estate. Indeed, defendant, perhaps apprehending the strength of this conclusion, has argued in so many words that her mere happiness was sufficient reason to distribute her entire share to her individually (and ultimately to John). Yet, the court finds that the trust agreement's terms unequivocally identify Melinda's happiness and well-being, and Grace's desire to provide for it, as a mere guideline for a trustee's discretion to make distributions for her HEMS purposes, not a purpose in and of itself. To hold otherwise would inject an element of caprice that would admit of a trustee making discretionary distributions for essentially any reason, even when the trust agreement's language allowed such only for HEMS purposes, swallowing whole those provisions of the trust agreement and rendering them meaningless. Such a construction is untenable.
Further, though not necessary to the determination of this motion, the court discerns in the plain, unambiguous language of the trust agreement Grace's intent that the farm remain in the line of her direct descendants unless that line were to be exhausted. Arguments not specifically addressed herein have been examined and determined to be without merit or academic in light of the court's other holdings. Based upon the foregoing, it is hereby
ORDERED that plaintiffs' motion is granted, and they are granted judgment on the cause of action in the complaint; and it is further
ORDERED that the provisions of the GHW Irrevocable Trust agreement require that the distribution from the subtrust, or "separate trust" in the parlance of the trust agreement, established for the benefit of Melinda L. Waddell be for purposes of her health, education, maintenance or support; and it is further
ORDERED that the transfer of Melinda L. Waddell's ⅓ interest in the trust principal and undistributed income from herself and defendant as cotrustees of the separate subtrust established for her, to herself, individually, was ultra vires, as undertaken for purposes other than Melinda L. Waddell's health, education, maintenance or support and is therefore rescinded, nullified and declared invalid; and it is further
ORDERED that the transfer of the trust property so conveyed from Melinda L. Waddell, individually, to herself and defendant as joint tenants is rescinded, nullified and declared invalid for the reasons stated herein; and it is further
ORDERED that defendant shall forthwith convey the ⅓ interest in the Waddell Family Farm that he purports to hold pursuant to the deed from Melinda L. Waddell, individually, to him and Melinda L. Waddell as joint tenants, with rights of survivorship, to which full title purportedly vested in defendant upon Melinda L. Waddell's death, to plaintiffs William C. Waddell and Kathleen Waddell Johnson, as successor trustees of the GHW Irrevocable Trust for administration in accord with the trust agreement as construed herein; and it is further
ORDERED that defendant shall pay the costs of preparing and filing a deed and any other papers necessary to effectuate and record the conveyance ordered herein; and it is further
ORDERED that the court shall convene a conference, to be held virtually via Microsoft Teams, on Monday, July 22, 2024, at 9:30 a.m., the purposes of which are to discuss further proceedings upon defendant's counterclaim herein and establish a schedule for the completion of discovery, the making of any further dispositive motions and the filing of a note of issue.
The within constitutes the decision and order of this court.