Setting Up a Living Trust for a Non-Citizen: Linda McCartney's Trust for Paul McCartney as a Model

Lady Linda Eastman McCartney was not only the beloved wife of Sir Paul McCartney.  She was also the daughter of lawyer and art collector Lee Eastman (né Leopold Vail Epstein) and his first wife Louise Sara Lindner Eastman, heiress to the Lindner Department Store fortune who died in a plane crash on March 1, 1962.  Linda was born in New York City and retained her American citizenship throughout her life.

According to the New York Times, Lee Eastman's firm Eastman and Eastman formed with his son John represented such luminaries as David Bowie, Billy Joel, Andrew Lloyd Webber and the estate of Tennessee Williams.  Eastman also formed M.P.L. Communications dedicated the Paul McCartney's music ventures.  In addition, Lee Eastman represented McCartney in the dissolution of the Beatles partnership.

Diagnosed with breast cancer in 1995, Linda McCartney died in Tucson, Arizona on 17 April 1998.  One of her memorial services was held at Riverside Church in New York.  Linda McCartney's Will was probated in New York.  Benefiting from her family's legal expertise, she left her entire estate to her husband of 29 years, Paul McCartney, in a Qualified Domestic Trust (QDOT).  The QDOT is a very useful estate planning tool when one spouse is not a U.S. citizen because the couple is not able to take advantage of the marital deduction to avoid estate taxes upon the death of the first spouse (note that the estate tax is repealed for 2010).

What is the estate marital deduction?  Section 2056 of the Internal Revenue Code (IRC)  permits United States citizens to transfer at death unlimited amounts of assets to the surviving spouse.  The Code also allows couples to create a marital trust such as a Qualified Terminable Interest Property (QTIP) Trust or through A-B Trusts. 

However, when one spouse is a non-citizen, Section 2056 does not apply.  Thus, the surviving spouse will have to pay estate taxes for assets above the federal and state exemptions.   The QDOT is created in order to avoid estate taxes being paid by the surviving spouse on assets that exceed the exemptions.  I.R.C. §2056A governs the requirements for a QDOT:

• A QDOT must qualify for the marital deduction as provided for in §2056.  That means that the QDOT must specify that all income from the trust be distributed to the surviving spouse.
• 
  The trustee of the QDOT must be a citizen of the United States.
• If the estate is valued at more than $2 million, then
• at least one of the trustees must be a U.S. bank or a trust company; or
• the individual U.S. trustee must furnish a bond or letter of credit equal to 65 percent of the fair market value of the assets in the trust.
• If the asset is valued at less than $2 million, then
• either a U.S. bank or a trust company must be the trustee; or
• less than 35 percent of the trust assets can be non-U.S. real property.
• When distributions are made from the trust, estate tax must be paid on each distribution.  The trust must be drafted such that the trustee has the right to withhold the estate taxes due. 
• The surviving non-citizen spouse may be eligible for a hardship distribution defined as an immediate need for financial support related to the spouse's health, maintenance, education, or support.

Because Linda McCartney retained her U.S. citizenship, set up the QDOT trust to benefit Paul, and had her Will probated in New York, Sir Paul was able to avoid paying up to 40% in British inheritance taxes.  The QDOT also meant that she was able to pass her entire estate to her husband free of federal and state estate taxes.

What is the lesson to be learned from Linda McCarthy's Will?  Each person's estate is unique, and no boilerplate form can take the place of a carefully crafted Will in the hands of a competent attorney.  Because she obtained excellent legal counsel, Linda was able to pass on the full benefit of her estate to her beloved husband.  Your unique estate deserves the quality attention it will be given by your attorney.

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Marilyn Monroe's Will and the Right of Publicity: Residency Matters

After her divorce from Yankee slugger Joe DiMaggio on 27 October 1954, Marilyn Monroe decided to form Marilyn Monroe Productions on 31 December 1954 before leaving California to begin a new life in New York City.  She would reside in New York until shortly before her death in 1962.  In early 1955, Monroe studied privately with Lee Strasberg before joining the famed Actors Studio and taking classes there.  Determined to become a serious actress, Monroe also hired Strasberg's then wife Paula as her new acting coach.  At Strasberg's urging, she also began psychoanalysis with Dr. Marianne Kris as a way of helping her to bring out more of herself in the development of character roles.

After her marriage to playwright Arthur Miller in 1956, the newlyweds made their home in Manhattan's Sutton Place overlooking the East River beginning in August of 1957.  Marilyn Monroe was still a resident of this apartment (and thus of New York) when she died in her Brentwood, CA home on 5 August 1962.

On 14 January 1961, Marilyn Monroe executed her Last Will and Testament in New York.  The Will was drafted by "lawyer to the stars" Aaron R. Frosch, who was also Richard Burton and Elizabeth Taylor's attorney.   The Will named Frosch as the executor of the Will and as the trustee of the trust that Monroe established to care for her mother Gladys Baker.

After Monroe's death in California in 1962, Frosch filed the Will for probate in New York County Surrogate Court.  According to a Time Magazine article, "for all her troubled personal life, her business affairs seemed in extraordinarily good order. Unencumbered by the debts, tax claims and pending lawsuits so common to Hollywood's money minters, the value of her estate was listed "in excess of $500,000," a legalism often meaning much more. She left $100,000 in trust for her mentally ill mother, $50,000 to her onetime secretary, May Reis, $93,750 to her Manhattan psychiatrist, Marianne Kris, the rest to her sister and friends, chief among them Method Director-Teacher Lee Strasberg, 60, who reportedly will get a munificent $240,000 and all her personal belongings."

Strasberg received the bulk of Monroe's estate as a result of the following stipulation in the Will:

SIXTH: All the rest, residue and remainder of my estate, both real and personal, of whatsoever nature and wheresoever situate, of which I shall die seized or possessed or to which I shall be in any way entitled, or over which I shall possess any power of appointment by Will at the time of my death, including any lapsed legacies, I give, devise and bequeath as follows:

(a) to MAY REIS the sum of $40,000.00 or 25% of the total remainder of my estate, whichever shall be the lesser,

(b) To DR. MARIANNE KRIS 25% of the balance thereof, to be used by her as set forth in ARTICLE FIFTH (d) of this my Last Will and Testament.

(c) To LEE STRASBERG the entire remaining balance.

Monroe's psychiatrist Dr.  Marianne Kris founded the Anna Freud Centre in London, which inherited her share of Monroe's estate after Kris's death.  When Lee Strasberg died in 1982, his inheritance from Monroe passed to his last wife Anna who then created Marilyn Monroe LLC, which now owns her estate share of the publicity rights to Marilyn Monroe.  In 1996, Anna Strasberg hired Indiana-based CMG Worldwide to manage Monroe's publicity rights.  When Aaron Frosch died in 1989, Anna Strasberg was appointed as the administrator of Monroe's estate by the New York County Surrogate's Court.  In 2001 Anna Strasberg was given permission by the Surrogate's Court to close out the estate and to transfer the remaining assets to Marilyn Monroe LLC (MMLLC).

Monroe's Will did not mention a right of publicity.  A right of publicity is a creature of state statute.  There is no federal law that governs the right of publicity.  Indiana has the most far-reaching statute concerning the right of publicity, an important fact in Monroe's case because CMG Worldwide is based in Indiana.   Passed in 1994, Indiana's Code 32-36-1 recognizes the right of publicity for 100 years after the death of the celebrity in question.  Its application is far-reaching, covering everything from "name, image and likeness" to "voice; signature; photograph; image; likeness; distinctive appearance; gestures; or mannerisms."

New York, on the other hand, has a much more limited right of publicity.  In New York, the right of publicity is governed by  N.Y. Civ. Rights Law §§ 50, 51.   The right of publicity does not survive the decedent in New York.

In 2007 the Shaw Family Archives (SFA), a family-owner company established by the children of Sam Shaw, filed suit against CMG in the Southern District of New York (Shaw Family Archives Ltd. v. CMG Worldwide, Inc., 486 F. Supp. 2d 309, 312 (S.D.N.Y. 2007)).  At issue was whether Marilyn Monroe LLC held the actress's post-mortem right of publicity.  At stake was over $7 million annually on the sale of Monroe merchandise, and CMG claimed exclusive rights over Monroe's postmortem right of publicity.

Sam Shaw was a photographer and friend of Monroe's who took many photographs of her, including the iconic photo of Marilyn standing over the subway grate with her skirt billowing, a photo that was used as a publicity shot for the film The Seven-Year Itch.   SFA asserted in its complaint that the Shaw children were the holders of the copyright to these photographs (486 F. Supp. 2d at 312-13).  SFA argued that “even if a postmortem right of publicity in Marilyn Monroe’s name, likeness and persona exists, MMLLC and CMG cannot demonstrate that they are owners of the right because only property actually owned by the testator at the time of her death can be devised by will” (Shaw, 486 F. Supp. 2d at 313-14).

Relying on the Indiana statute, Marilyn Monroe LLC (MMLLC) responded by saying that it was the holder of Monroe's postmortem right of publicity.   MMLLC even counter sued SFA, claiming that SFA had violated Indiana's Right of Publicity Act because SFA had permitted the sale of a T-shirt bearing a photo of Monroe to be sold in a Target department store in Indiana.

The court granted SFA a summary judgment, meaning that the court found no genuine issue as to any material fact and that SFA was entitled to a judgment as a matter of law.  The court said that because Marilyn Monroe was not a domiciliary of Indiana at the time of her death, she could not transfer her right of publicity through her Will.   She was either a domiciliary of California or New York, and at the time of the trial neither state recognized a postmortem right of publicity.

The case was decided on May 4, 2007.  In October of 2007, California Governor Arnold Schwarzenegger signed into law Senate Bill 771 that created a postmortem right of publicity for non-family members named in the residuary clause in a Will, so long as the decedent was a resident of California at the time of death.   The law was made retroactive, thus impacting Monroe's estate.  The Screen Actors Guild and Anna Strasberg had lobbied heavily for the passage of the law.

But the passage of the law did not fully resolve the case of Marilyn Monroe.  Was Monroe a resident of New York or of California at the time of her death?  In a choice of law case decided in May 2008, the District Court for the Central District of California held that since the executors of Monroe's estate had chosen New York as her place of residence at the time of her death and had probated her Will in New York, Monroe was a resident of New York at the time of her death.  And because New York does not allow postmortem rights of publicity, Monroe's estate could not claim those rights under California law.

The irony was that, in choosing New York over California, the executors unknowingly deprived the residuary beneficiaries (Marilyn Monroe LLC) from gaining exclusive control of her postmortem right of publicity.  They had chosen to probate the estate in New York because California inheritance taxes were higher than New York's.

What are the lessons to be learned from Marilyn Monroe's Will?  First, it is a cautionary tale about the importance of the language for the residuary estate in the drafting of a Will.   Secondly, where a person has more than one residence, it is wise to look at how the laws of each state will impact and be implicated in the person's Will.  And thirdly, each person's estate is unique, and no boilerplate form can take the place of a carefully crafted Will in the hands of a competent attorney.  Your unique estate deserves the attention it will be given by your attorney.

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The Mark Rothko Estate Case: Self-Dealing in the Art World

The 2010 Tony Award for Best Broadway Play went to Red by John Logan.  The play tells the story of abstract expressionist painter Mark Rothko's creative struggle as the artist executed a series of commissioned murals for New York's famed Four Seasons Restaurant, now known as the Seagram Murals.  As compelling a play as this visual dramatic feast is, it is equally matched by the legal drama that surrounded Rothko's art estate following his suicide in 1970.  Like the play, its cast of characters were colorful, monomaniacal, and behaved in ways described by the New York Court of Appeals in Matter of Rothko, 43 NY2d 305, as "manifestly wrongful and indeed shocking."  The charges brought before the court by Rothko's children included conspiracy, fraud, and breach of fiduciary duty resulting in the waste of estate assets.

The case would take over six years to reach the Court of Appeals.  In a non-jury trial that lasted 89 days, the case exposed how the artist's three executors named in his Will, two of whom had conflicts of interest with the gallery that represented Rothko, disposed of 798 extremely valuable paintings.   The testimony revealed a labyrinth of shady deals, betrayal, and bald-faced greed -- the seedy side of the art world. The trial also showed the importance of selecting trustworthy executors for one's estate.

In 1956 when Rothko was a struggling artist in New York, he had made a contract with the Marlborough Gallery whereby the gallery would sell all of Rothko's paintings in exchange for a monthly stipend.  In the 1960s, during Rothko's most prolific output, the gallery under the direction of its owner Frances Kenneth Lloyd consistently under-reported the sale price of the paintings by filtering the payments through Swiss and Liechtensteiner bank accounts.  As a result, Rothko continued to believe erroneously that his work was not garnering high prices on the art market. Rothko renewed his contract with the Marlborough Gallery in 1969, one year before his untimely death.

According to the New York Times, Rothko had named three executors in his Will:  Bernard Reis, his financial advisor, who also drafted the Will; Morton Levine, a friend and anthropology professor; and Theodore Stamos, a fellow abstract expressionist artist.  Reis also set up the Mark Rothko Foundation, which was to be funded by the sale of Rothko's paintings bequeathed to the Foundation.  The Foundation's original charter stated that the trustees were to place the works with appropriate museums and collectors, with the proceeds going to educational purposes.

During the course of the trial, it was revealed that the executors had conspired to defraud the estate after Rothko's death.  Two of the three named executors had a conflict of interest with respect to the Marlborough Gallery.  Reis was a director of the gallery.  Stamos also developed a conflict of interest when he was influenced to change his representation from the Andre Emmerich Gallery to a more generous contract with the Marlborough Gallery in exchange for his cooperation in the conspiracy.

Shortly before he committed suicide in 1970, Rothko gave some of the paintings still in his possession to his two children.   He hoped that the value of his work would increase upon his passing and thus provide for their financial security.  After his death, the children were unceremoniously informed by Lloyd that, as a result of the 1956 and the 1969 contracts, Marlborough Gallery owned all of Rothko's paintings.   

Meanwhile the Foundation's trustees changed the purpose clause in the charter so that the Foundation would now be awarding grants to artists.  These grants were to be funded by the sale of the paintings.  This change in the Foundation's charter made way for a new deal with Marlborough Gallery.  The executors sold 100 paintings to Marlborough in short order for $1,800,000 and consigned another 698 works at the inflated commission of 50 percent.  They then divided up the sales proceeds as their commissions, leaving the estate with only $200,000 in proceeds from the sale of the paintings.

In 1971 the artist's daughter Kate, along with the guardian of her brother Christopher, sued to have the executors removed and to recover the paintings by having the estate released from the contracts with Marlborough Gallery.  The bases of the complaint were fraud and a breach of fiduciary duty of care resulting in the waste of estate assets.  The case wound its way through the courts until it reached New York's highest court in 1977.  The Court of Appeals agreed with the rulings of the courts below.  The three executors were removed and, together with the Marlborough Gallery, they were ordered to pay more than $9 million dollars plus costs, representing appreciation damages, and to return 658 paintings to the estate.  Some paintings had been sold by the gallery in 1972 in violation of a temporary restraining order. 

 

The Rothko case serves as a cautionary tale about the appointment of executors with clean hands who are not self-interested.   In the case of Reis and Stamos, both were involved with the Marlborough Gallery.  Their conflict of interest led to self-dealing and a betrayal of their fiduciary trust.

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Adoption and Inheritance, Part 4: The Million-Dollar Issue

It is not a rare occurrence for a step-parent to adopt  the child of his or her spouse.   The adoption is usually the result of a desire to create a strong family unit where a second marriage has occurred.  In the case of the adoption of Lloyd Dudley Seaman, however, his adoption by his step-father would lead to a ground-breaking New York Court of Appeals case that would define inheritance rights by the issue (children) of children adopted by their step-parent.

Lloyd Dudley Seaman's father, Lloyd I. Seaman, married twice.  With his first wife Gladys, he had a son Lloyd Dudley.  After he and Gladys divorced, he married Mary with whom he had a daughter Roberta.  Gladys also remarried, and subsequently her new husband adopted Lloyd Dudley.  Lloyd Dudley later had a daughter Charlotte, while Roberta had no children.  Lloyd Dudley predeceased his half-sister Roberta.  In New York, half-blood relatives are considered whole blood relatives for the purposes of succession (EPTL § 4-1.1(7)(b):  For all purposes of this section, decedent's relatives of the half blood shall be treated as if they were relatives of the whole blood.).

When Roberta passed away leaving behind an estate valued at close to $1 million,  the Surrogate's Court had to determine whether Charlotte could inherit from her aunt since her father had been adopted by his step-father.  In New York, the child (issue) only possesses those inheritance rights that her adopted out parent possessed.  Adoption in New York is a creature of statute under the Domestic Relations Law (DRL).  The Surrogate reasoned that Charlotte could not inherit from Roberta because neither the 1986 Law Revision Commission recommendations nor the State Legislature that enacted those recommendations into law provided for the descendants or issue of adopted out children.  Charlotte appealed the decision to the Appellate Division Second Department, which agreed with the decision below.  Charlotte then appealed to New York's highest court, the Court of Appeals.

In Matter of Seaman, 576 N.Y.S.2d 838 (1991), the Court of Appeals would extend the rights of children whose parent had been adopted by a step-parent.  Since the inheritance rights of the issue of adopted out children are dependent upon their parent's inheritance rights, the court had to do a textual and historical analysis of the statutory language to reach its decision.  As a result, this case presents us with some rich background in New York adoption history.  It is also instructive because the court relied as much on what was left unsaid by the Legislature, extracting from the silence an implicit reference to prior rights

Beginning in 1887, New York amended its adoption law with respect to inheritance rights, granting adopted children and their heirs inheritance rights from their adoptive parents while not severing their rights to inherit from their natural parents (for a very good historical analysis, see Anne Wiseman French's article When Blood Isn't Thicker Than Water: The Inheritance Rights of Adopted-out Children in New York, 53 Brooklyn L Rev 1007, 1011-1012 [1988]).  This was not a legislative oversight because in 1896 the Legislature affirmed its initial position when it once more amended the statute to read that the "rights of inheritance and succession from his natural parents remain unaffected by such adoption" (L 1896, ch 272, § 64).  

This version of the law remained in effect until 1963 when the Legislature terminated the inheritance rights of the adopted out child with respect to its biological parents.  It did, however, permit an exception for step-parent adoption where the custodial natural parent consented to the adoption.  In 1986, as a result of a Court of Appeals decision in In re Best, 66 N.Y.2d 151 (1985), the law was amended to state that the adopted-out child was deemed a “stranger” with respect to the biological parents.  A year later, the Legislature restored the adopted child's limited rights in intestacy, now codified as DRL § 117(1)(e).

The issue before the Court of Appeals in Matter of Seaman was one of statutory construction because the statutes control the inheritance rights of adopted out children. Was it deliberate on the part of the Legislature to omit mention of the inheritance rights of the descendants of adopted out children in the 1987 amendment, or was it merely an oversight? If a mere oversight, then what were the rights of succession for these descendants?

The court relied heavily on the statutory language of  DRL § 117(1)(e)(1) in its decision: "the decedent is the adoptive child's birth grandparent or is a descendant of such grandparent."  The court found that it had direct applicability with respect to Lloyd Dudley and Roberta since they shared a common grandparent.  The court then reasoned that in the 1987 amendment the Legislature had impliedly granted the inheritance rights to the issue of the adopted out child to the same degree that these had been restored to the adopted out child.   Since the Legislature had in the past been explicit in its directive regarding the inheritance rights of descendants, the court reasoned that the Legislature's silence on this point in the latest amendment was to be understood as a tacit affirmation of its prior stance, namely that inheritance rights of descendants of adopted children are contingent upon their parent's rights to inherit from their natural family.

Furthermore, the court distinguished between two types of adoptions, one where the child is adopted out to strangers and the other where the child is adopted by the biological parent's second spouse.  In the first instance, several policy concerns motivate the severance of ties between the adopted out child and the biological family, including the need for confidentiality in order to permit the full assimilation of the child into the adoptive family.  Such policy concerns are of no import in the second type of adoption, a kind of intra-family adoption that results from the divorce of one parent.  The step-parent is adopting with the permission of the biological parent, and the natural parent is not relinquishing any rights to the child.  The adoption is undertaken because of a desire to blend fully the new family.

The Court of Appeals thus found in Charlotte's favor, permitting her to inherit from her father's step-sister Roberta Seaman.  In so doing, the court acknowledged the reality of blended families that come into existence following a divorce and supported such intra-family adoptions by granting inheritance rights to the descendants of these children.

Matter of Seaman also serves to illustrate an important point about the need to review your Will and estate plan on a yearly basis with your attorney.  Things in your life will surely change from year to year, and it is a good practice to get in the habit of talking through those changes with your attorney.  Your attorney will be able to advise you as to any impact on your estate plan.

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Adoption and Inheritance, Part 3: When the Adopted Out Beneficiary Dies Before the Birth Parent

In 1924,  Mildred Murphy gave birth to a son whom she named Arthur.  Arthur went to live with the Manning family who renamed him Clair Willard Manning. The Mannings officially adopted Clair in 1944 when he was 19.  Sometime after World War II, Mildred and Clair re-established contact.  Mildred had no other children.

Clair would eventually have four children of his own.

In 1998, Mildred executed a Will with this relevant provision:

"Fifth. I give, devise and bequeath to Clair W. Manning of Wellsboro, PA the real property owned by me on Keuka Lake, located at 132 and 134 West Lake Road, consisting of a cottage, extra lot and boathouse together with all of the contents and property located therein and thereon. I further give and bequeath to Clair W. Manning the sum of Eight thousand dollars ($8,000.00)."

She also bequeathed half of her residuary estate to Clair, the remaining half to go to her sister-in-law, Evelyn Beckman.  Mildred passed away on Valentine's Day 2002, having been predeceased by Clair on 4 March 2001.

In my previous post, I considered the issue of class gifts and the requirement under New York law that an adopted out child be specifically named in a Will or a trust in order to inherit from a birth parent as illustrated by the Matter of Piel case.   For the purpose of inheritance, Domestic Relations Law (DRL) § 117 terminates the adopted-out child’s right to inherit from the biological parents unless the adopted out child is specifically named, but at the same time gives the adopted child the right to inherit from the adoptive parents. 

Today's fascinating case, Matter of Murphy, presents another twist on that same theme.  In Murphy, the New York Court of Appeals case focused on the rights of the children of an adopted out child who had been named in his birth mother's Will but who had predeceased her.   In this case, the court had to construe two very relevant statutes that implicated each other but did not reference each other.  In Murphy, the Court of Appeals bridged these two statutes and at the same time extended the rights of the issue of adopted out children who are named beneficiaries in a Will.

As Judge Rosenblatt noted in his majority opinion, at issue was the definition of "issue."  Can the children of a named adopted out child inherit the adopted out child's gift, or does the gift lapse and fall into the residuary estate?  More to the point, what is the interplay of New York's anti-lapse statute (EPTL 3-3.3) with the statute governing the inheritance rights of adopted children (DRL § 117(2)(b)), particularly with respect to descendants of a named adopted out child in a Will (see my prior posting on Matter of Piel)?

What is the anti-lapse statute? The anti-lapse statute takes effect when the beneficiary under a Will dies before the testator because the law does not permit a gift to be made to a deceased person.  The anti-lapse statute "saves" the gift and passes the gift on to the issue of the deceased beneficiary.  However, the law applies the statute to a very narrow band of persons.  The anti-lapse statute applies only when the deceased beneficiary was the issue, brother, or sister of the testator, and when the deceased beneficiary has issue (children) who survive the testator.

There are three additional important provisions concerning the anti-lapse statute.  First, the anti-lapse statute will only go into effect as a result of a Will.  If a person dies without a Will, the law of intestacy will apply (see my prior post on the difference between a beneficiary and an heir), meaning that the adopted out child cannot be an heir of their birth parent.  Secondly, the anti-lapse statute trumps the deceased beneficiary's Will with respect to the inherited gift because the law names the substitute taker.  Finally, if a gift in a Will is conditioned upon the survival of the beneficiary, it will automatically rule out the application of the anti-lapse statute.

Note that the anti-lapse statute makes no direct reference to the inheritance rights of adopted out children.  The adoption law (DRL § 117(2)(b)) is also silent with respect to the anti-lapse statute. New York law provides for full inheritance rights of adopted children from their adopting family (and vice versa), but inheritance rights of adopted out children are severed from their natural parent or kin unless (1) they are expressly named in a Will or trust; (2) they are adopted by the spouse of a natural parent, in which case the child and his issue can inherit from the adopting parent and either natural parent; or (3) the child is adopted by a relative, in which case the child can inherit under the adoptive relationship. 

Furthermore, under the terms of the anti-lapse statute, if the child is adopted out by a brother or a sister of the testator (the birth parent),  then the adopted out child qualifies as a substitute taker under the anti-lapse statute.  If the child is related by both adoption and a natural relationship, then the adopted out child inherits under the natural relationship.  This would be the case when the child was adopted by an aunt, for example, and the aunt's mother (the child's natural grandmother) dies.   The adopted out child would inherit as a natural descendant of the grandmother.  If the adoptive aunt predeceased the adopted out child, then the adopted out child could take under the anti-lapse statute.

Under New York law, adopted out children are considered "strangers" with respect to their birth mothers for the purpose of inheritance, even if they re-establish a relationship.  The adopted out child inherits from the adoptive parents and, as a result, so do their children (issue).  The adopted out child may inherit specific bequests or class gifts from the birth parents only if specifically named in the Will.  The law is silent as to the operation of the anti-lapse statute in such a case. 

Does the act of naming of an adopted out child in a Will change that person's status from "stranger" to "issue"?  This is what the court in Murphy was asked to decide.  If the answer was yes, then the anti-lapse statute would be in effect and Clair's children would inherit his bequest.  If  the answer was no, then Clair's gift would fall into the residuary estate and Evelyn Beckman would inherit all of the residuary estate.

The court found in favor of the Manning children.  "We therefore conclude that when Mildred Murphy named her adopted-out son Clair as a beneficiary of her will, she triggered the condition in section 117 (2) that made him a nonstranger, and thus her issue, with respect to the relevant bequest. His children, therefore, are entitled to the benefit of the anti-lapse statute."

What Murphy means in practice is that a child adopted out by strangers receives the same rights as a child adopted out by a close relative (brother or sister of the testator), merely by being named in the testator's Will.  Murphy extends the inheritance rights of the named adopted out child's issue under the anti-lapse statute and puts them on equal legal footing with a child adopted out by a sister or brother of the testator.  And because the anti-lapse statute overrides the deceased beneficiary's Will by operation of law, it may have the unintended consequence of defeating the original testator's estate plans or the estate plans of the predeceased beneficiary.

The Murphy case points out once again the necessity of working with an attorney to draft your Will and tailor it to your individual needs.  Though it may seem contrary to nature, children at times do predecease their parents, and this reality must somehow be accounted for in your Will.  Your attorney will work through some scenarios with you to make sure that all of your wishes are met and executable.  No boilerplate form can do this kind of reasoned and careful drafting befitting your individual needs.  

In the next segment of this series, I will look at yet another fascinating New York case involving adopted-out children and inheritance rights. I invite you to join my list of subscribers to this blog by clicking on "Subscribe to" on the left-hand side of the page so that you can receive a notification when the next installment has been published. Thank you.

Adoption and Inheritance in New York, Part 2: Just (Jell-O) Desserts under the Best Rule

In 1974, 19-year old Oregon native Elizabeth McNabb set out to find her biological parents armed with one clue offered by a family gynecologist.  Elizabeth's adoptive parents had revealed her adoption to her when she was nine years old.  They also gave her an important clue:  they told her that a family gynecologist had handled her birth.  At age 15, Elizabeth had asked the gynecologist about her birth mother.  The gynecologist demurred and offered scant information about Elizabeth's birth mother, other than that her mother had been a "bohemian.".  But after McNabb became a mother herself, she redoubled her efforts to find out about her mother.  Nothing could have prepared her for her ultimate discovery, that her mother was an heiress to the multi-million Jell-O fortune, or for a legal journey that would end in New York's highest court.

Prior to 1998 and the passage of Measure 58, Oregon's adoption records were sealed.  This was the standard policy governing most state laws regarding adoption records, including New York.  In 1935, New York's Governor Lehman signed the closed record law that remains the law in New York today.  Confidentiality was advocated to minimize the stigma of illegitimacy, to prevent unwanted contact between children and their birth mothers, and to make it possible for some adoptive parents to never reveal to the child that they had been adopted. 

New York courts, as well as courts in other states, effect confidentiality by producing new birth certificates listing the names of the adoptive parents names as the parents at the time of the issuance of the adoption decree. The original birth records containing the names of at least the birth mother are then sealed away.

Sealed adoption records remain the law in New York. The court in Matter of Linda F. M., 52 NY2d 236, 239 (1981), explained that the sealed records law “shields the child from possibly disturbing facts surrounding his or her birth and parentage,” a clear reference to the stigma of illegitimacy; "permits the adoptive parents to develop a close relationship with the child free from interference or distraction,” thereby giving the adoptive parent(s) the exclusive right as to whether to reveal the conditions of the child's birth; and "provides the natural parents with an anonymity that they may consider vital,” protecting the identity of the birth mother.

Because her records were still sealed in Oregon in 1988, Elizabeth McNabb petitioned the judge who had issued her adoption decree to open her sealed record.  She pleaded a medical exception that existed in the then-Oregon law, saying that she needed to know her medical history because she was now a mother herself.  She argued on behalf of the welfare of her children.  The judge was persuaded by the argument and ordered that McNabb's original birth certificate be sent to her.   That is when she discovered that her birth mother was a certain Barbara Woodward of Rochester, N.Y.

New York also has a medical exception for the unsealing of original birth certificates of adopted out children.  The provision is contained in DRL § 114(4).   As a first step, the adopted out child, the petitioner,  must obtain the certification of a doctor licensed to practice in New York stating with specificity why this medical information is required:  "Certification from a physician licensed to practice medicine in the state of New York that relief under this subdivision is required to address a serious physical or mental illness shall be prima facie evidence of good cause. Such certification shall identify the information required to address such illness."  Only in the case of an immediate medical emergency may the court grant, at its discretion, direct access to the adoption records by the petitioner.

In all other cases the court will appoint a guardian ad litem or another disinterested person to examine the original adoption records for the purpose of satisfying the petitioner's medical request.  The birth person will be given the opportunity to disclose the requested medical information, or to grant the request to examine the birth parent's medical records.  The guardian ad litem will then report the findings to the court.   In some cases, "the court may in its discretion authorize direct disclosure or access to and inspection of the adoption records by the petitioner" where appropriate.

Having learned her birth mother's name and hometown, McNabb became calling Woodwards in Rochester, New York.  Her diligence paid off:  she found a Barbara Woodward who had married and moved to Maine.  McNabb then called Woodward, who confirmed that she was indeed her birth mother.  They decided to meet.  McNabb, then living in Washington State, flew cross country and spent four days at Woodward's farm in Genesse County in upstate New York.

During her visit, McNabb learned that she was the result of her mother's relationship with a married man, and that Woodward had given birth in Oregon in order to cover up the stigma of illegitimacy.  Woodward had subsequently married and was the mother of two other daughters,  Stobie Woodward Piel and Lila Piel-Ollmann.  McNabb also learned that Woodward was an heiress to the Jell-O fortune. 

According to a Huffington Post story, Woodward's grandfather Orator Woodward had purchased the Jell-O trademark in 1899 for $450 from  Pearle Bixby Wait, a carpenter in Le Roy, New York,.  Wait had created the dessert by mixing fruit and gelatin in 1897, but the door-to-door sales business never took off.  By the time of Wait's death in 1915, Woodward had turned the dessert into a multi-million dollar industry. Orator and his wife Cora had six children.  Their son Donald's first marriage was to Florence Stobie, Barbara's mother.

 

Barbara Woodward Piel died in 2003.  The Woodward family fortune was controlled by two trusts established in 1926 and 1963.  At issue was whether New York law permitted an adopted out child to receive a bequest from these trusts.

 

The Surrogate's Court in Monroe County ruled that McNabb was not a descendant under the terms of the trust, and thus was not entitled to a third of her mother's estate valued at more than $10 million.  The court relied on a ruling in Matter of Best, 66 NY2d 151 (1985).  The court in Matter of Best held that a class gift, a testamentary gift giving a sum to an unspecified number of persons who will be determined at the time of the donor's death, did not presumptively include adopted-out children.   In order to receive a gift under the Best rule, an adopted-out child would need to be specifically named in the Will or trust.

 

McNabb appealed the ruling, and the Appellate Division Fourth Department reversed the lower court's ruling, in part because the trusts had been executed prior to New York's 1963 and 1966 amendments to its adoption law (see my prior post on the history of adoption in New York for more details).

 

New York's highest court, the Court of Appeals, reversed the Appellate Division and reinstated the Surrogate's rulings.  In Matter of Piel, 2008 NY Slip Op 02082 (10 NY3d 163), decided on 13 March 2008, the court once again relied on Best and added several policy considerations.  Among these were the difficulty of a trustee closing out a class for the purpose of estate administration for fear that a secret, adopted out child might be lurking out there, and the State's interest in the finality of court decrees and titles to property.  Elizabeth McNabb did not receive a part of her mother's bequest under the terms of the two trusts.

 

Could the result have been different?  Yes.  Had Barbara specifically named her adopted-out child in her estate planning documents, Elizabeth would have received her share of her birth mother's estate.  Clearly Barbara Woodward Piel welcomed the reunion with her adopted-out daughter, and Elizabeth had established relationships with her half-sisters -- the warm relationships would not survive the legal wrangling.  But Barbara had not changed her Will to identify Elizabeth by name as her adopted-out child.  The Piel case provides a cautionary tale for reviewing your estate plans with your attorney on a yearly basis to account for the changes in your life.  Your attorney will then be able to offer suggestions based upon the current state of the law in New York.   No boilerplate forms can provide this level of protection for your family and your wishes.

 

In the next segment of this series, I will look at yet another fascinating New York case involving adopted-out children and inheritance rights. I invite you to join my list of subscribers to this blog by clicking on "Subscribe to" on the left-hand side of the page so that you can receive a notification when the next installment has been published. Thank you.