The Gottlieb Estate: When Dying without an Estate Plan Impacts Real Estate

New Yorkers are fond of telling real estate stories.  It's our urban past time.  But when they include a cast of characters seemingly ripped from the pages of a Dickens novel and some properties made extremely valuable as a result of gentrification, the mix is irresistible.  Add an estate controversy, and the story becomes even more compelling.

Labeled a "tightwad" by the New York Times, William Gottlieb learned about real estate from Harry Helmsley when he worked for him as a leasing representative.  Gottlieb observed how Helmsley made money by buying buildings and then cutting their operating costs.  When New York began experiencing tough economic times in the 1960,  Gottlieb went on a buying spree, purchasing foreclosed properties in what would become some of New York's trendiest neighborhoods.  Though he suffered from poor eyesight, William Gottlieb was blessed with great real estate foresight.

In 1972, Gottlieb had executed a Will leaving his entire estate to his sister Mollie, who had done clerical work in his office for years.  Together with their brother Arnold, she was named co-administrator of William's estate.  Mollie had two children:  Neil Bender and Cheryl Dier.  Dier had one son, Michael Corbett, from a previous marriage.  Michael Corbett had been raised by his grandparents.

In 1985 Mollie executed a Will that left everything to her husband and her son Neil, and expressly disinherited her daughter Cheryl.  After falling and breaking her hip in 2007, Mollie appointed her son Neil as administrator of the Gottlieb estate. She passed away a week later.

Thereupon Dier and Corbett filed suit against Neil Bender in Surrogate's Court claiming Neil's incompetence as executor, citing over 500 violations against Gottlieb properties as evidence.  Corbett launched a website to attract attention to the neglect of Gottlieb properties.  Corbett also alleged undue influence by Neil over his grandmother and claimed that his grandmother had promised his 25% of the estate.  The Surrogate's Court held that Bender's actions did not rise to the level that would merit disqualification as executor, and that Corbett had no standing to dispute the Will.  Dier and Corbett appealed.

In May 2010, the Appellate Court upheld the Surrogate's Court, finding Neil Bender to be fit to serve as executor.  The ruling paved the way for a potential redevelopment of the properties.  Only time will tell the fate of these Manhattan properties and their tenants.

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Can't Touch This: In Terrorem Clauses in Wills

Family squabbles over the estate of a decedent are the stuff of tragedy and of farce.  For this reason, testators often include in terrorem clauses that penalize with forfeiture of their testamentary gift any beneficiary of the Will who unsuccessfully contests its provisions in any court.  In terrorem clauses are also designed to safeguard carefully crafted estate plans from disruption.

New York law, however, provides for some limits on in terrorem clauses in order to prevent fraud, undue influence, or gross injustice.  These safe harbor provisions are found in Surrogate's Court Procedure Act (SCPA) § 1404 and Estates, Powers and Trusts Law (EPTL) § 3-3.5.  The purpose of these safe harbor provisions is to allow a beneficiary to inquire into the circumstances surrounding the drafting of a Will without risking forfeiture of the bequest.  Because courts must strictly construe in terrorem clauses, such safe harbor challenges are the only means a beneficiary has of evaluating the risk of contesting the Will.

EPTL § 3-3.5 provides for "[t]he preliminary examination, under SCPA 1404, of a proponent's witnesses, the person who prepared the will, the nominated executors and the proponents in a probate proceeding" (EPTL 3-3.5 [b] [3] [D]).   SCPA 1404 [4] states that these persons "may be examined as to all relevant matters which may be the basis of objections to the probate of the propounded instrument."  Did the Legislature intend that the safe harbor provisions apply only to those persons expressly mentioned in the companion statutes, or did the Legislature merely provide examples of the types of persons who could be examined and not an exhaustive list?

The New York Court of Appeals addressed the issue of safe harbor provisions as they relate to in terrorem clauses in Matter of Singer, 2009 NY Slip Op 09265 [13 NY3d 447].  On 15 April 2003 Rabbi Joseph Singer executed a Will leaving his Brooklyn home, much of his personal property, and $200,000 to his daughter Vivian who had given up her life to take care of her father's needs.  To his son Alexander he left half of the remaining estate (to be shared with Vivian who was also her father's executor), less the outright gifts of $15,000 to each of Alexander's two sons.

The Will contained an in terrorem clause addressed specifically at Alexander.  "I specifically direct that my son, Alexander I. Singer, not contest, object to or oppose this Will or The Joseph Singer Revocable Trust Agreement, or any part of my estate plan or any gifts made by me, and I specifically direct that my son not take my daughter, Vivian S. Singer, to a Bet Din (religious court) or to any other court for any reason whatsoever; and I specifically direct that if my son takes any such action or brings on any such proceeding, neither my son nor any of his issue shall receive any share of my estate, whether passing under this Will, under The Joseph Singer Revocable Trust Agreement or otherwise."

On 5 March 2004 Rabbi Singer died and Vivian submitted the Will for probate shortly thereafter.  Alexander then served a notice of discovery seeking, among other things, to depose Joseph Katz, Rabbi Singer's previous attorney who had drafted seven Wills for the Rabbi but not the one in question.  Mr. Katz was subsequently deposed by Alexander's attorney.  Thereupon, it was revealed that Rabbi Singer had inserted an in terrorem clause in a prior 2002 Will drafted by Katz.  Alexander did not challenge the Will.

Was the deposition of Mr. Katz sufficient clause to trigger the in terrorem clause?  After all, Katz did not belong the the class of persons expressly mentioned in the safe harbor statutes.  The safe harbor provisions do not include a former attorney.  Or was the testator's intent, that Alexander not challenge the Will in any way, satisfied because Alexander never challenged the Will?

The Court of Appeals balanced the testator's intent with the public policy concern that Wills be valid and authentic before being admitted to probate.  The court reasoned that only by examining Katz could Alexander properly conclude that he lacked a basis for a successful Wills contest.  "A broader construction of these clauses as manifesting testator's intent to preclude the examination of this witness would essentially cut off all other persons from being asked for information, no matter the potential value or relevance of that information—even as to the medical or psychological condition of the testator at the time the will was executed. Interpreting these clauses narrowly will allow surrogates to address on a case-by-case basis whether the conduct undertaken is in keeping with the testator's intent."  

With Matter of Singer,  the Court of Appeals set a standard for the case-by-case construction of in terrorem clauses:  whether the conduct undertaken is in keeping with the testator's intent.   Had the court ruled in Vivian's favor, then Alexander and his sons would have been stripped of their bequests.  Clearly, that was not Rabbi Singer's intent with the in terrorem clause.  He merely wished to protect Vivian's bulk share from a challenge.  He did not wish to disinherit his son or his grandsons.

Matter of Singer is an object lesson about the use (and possible misuse) of in terrorem clauses.  As Judge Graffeo noted in his concurrence, "in terrorem clauses are not favored since they may result in a total forfeiture of a bequest and—because of this serious consequence—they must be strictly construed to conform to the testator's expressed intent."   An in terrorem clause must be drafted very carefully to reflect the testator's intent.  Your attorney can advise you as to whether an in terrorem clause is the best strategy based upon your unique circumstances.

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The Federal Estate Tax: A Brief History

In many ways, the United States inherited the model for the federal estate tax from the British.  In feudal England, the monarch owned all of the real property and granted use of real estate to his nobles during their lifetime (life estate).  When the nobleman died, his heir could continue to use the land upon payment of an estate tax to the sovereign.  These death taxes provided needed income to the Crown to pay for war debts.   In default of heirs, the estate reverted to the Crown (escheat).  The statute Quia Emptores passed in 1290 finally granted the right to of an individual to hold an estate in land in fee simple (freehold) and to sell it (alienation), but it left the matter of the estate tax in the hands of the Crown.

The original Thirteen Colonies were the result of real estate grants and licences from the British Crown founded on the principles of Quia Emptores.  Whether New York still retained vestiges of Quia Emptores in its real estate law was  the subject of debate in the 19th century.  The court in De Peyster v. Michael, 6 NY 467 (1852), held that Quia Emptores had never been in effect in the colonies, meaning that land was not freely alienable in New York.  Seven years later, in Van Rensselaer v. Hays, 19 NY 68 (1859), the court in that case held that Quia Emptores had always been in effect in New York.  The question was settled in New York State Constitution Article 1 §12 which states "all lands within this state are declared allodial, so that, subject only to liability to escheat, the entire and absolute property is vested in the owners, according to the nature of their respective estates."  In a prior post, I have addressed the issue of the possibility of an estate escheating to the State when an individual dies without a Will (intestate). 

In 1765 the British Crown had imposed the Stamp Act specifically on the American colonies, the purpose of which was to help defray the military expenses, mainly troop salaries,  for the recently-fought Seven Year's War with France.  Among the provisions of the Stamp Act was a requirement that legal documents, such as Wills, be produced on special stamped paper produced in London and containing a revenue stamp.  Thus any colonist wishing to make a Will had to pay a tax.  Colonial discontent with taxes such as these would lead to the Revolutionary War.

Ironically the new government did not abandon this practice of enacting a tax on Wills to raise money to pay for military debts.  In an article published in the Journal of Business & Economics Research,  Eddie Metrejean and Cheryl Metrejean demonstrate an historical pattern whereby federal inheritance taxes began to be enacted to pay for wartime expenses.  Just a few years after the Revolution, the new Congress passed the Stamp Act of 1797 establishing a tax on Wills related to the transfer of property after death, once again to pay for a war in 1794 (albeit undeclared) with France.  But the law was quickly abolished before it could take effect.

The issue of an inheritance tax would not arise again until the Civil War.  A wartime inheritance tax was passed as part of the Revenue Act of 1862 affecting only the northern states, whose purpose was to raise over $1 million from estates valued at over $1000.  After the war, the inheritance tax was abolished by the Revenue Act of 1870.  Another short-lived inheritance tax was passed in 1898 to raise revenue for the Spanish-American War.  It was repealed in 1902.

Congress passed its first permanent estate tax with the Revenue Act of 1916, three years after the passage of the 16th Amendment and the institution of the federal income tax.  The constitutionality of new federal estate tax was challenged in New York Trust Co. v. Eisner, 256 U.S. 345 (1921), and in an opinion delivered by Oliver Wendell Holmes the Supreme Court held that the new law posed no "unconstitutional interference with the rights of the states to regulate descent and distribution" (256 U.S. 345, 348 (1921).

In order to close the loophole in the tax that allowed people to escape the inheritance tax by giving away their property, Congress passed a gift tax in 1932 that was declared constitutional by the Supreme Court in Heiner v. Donnan, 285 U.S. 312 (1932).  In 1948, the marital deduction became law, allowing property to pass to one's spouse without paying any estate tax.

The most significant changes to the federal estate tax occurred with the Tax Reform Act of 1976.  The Act enacted the following changes:

• a single unified rate structure for transfers of property at death;
• a single unified rate structure for lifetime property transfers;
• a unified exemption from taxes for certain transfers made either during one's lifetime or at death;
• a generation-skipping tax, taxing the transfer at the unified rate of the "skipped" generation if the beneficiary was two or more generations younger than the donor.

There have been other significant additions to the law.  In 1980, the "stepped-up" basis restored to the pre-1976 provisions, giving the beneficiaries a significant break in the amount of capital gains they would pay on transferred property that they later sold. 

In 1981, the martial deduction became unlimited, but with a catch.  With proper estate planning, the surviving spouse can escape paying any estate tax.  Without estate planning, the surviving spouse is left with a much larger estate on which the estate tax will be imposed.

In 2001 President Bush signed into law the Economic Growth and Tax Relief Reconciliation Act of 2001.  The law repealed the federal estate, gift, and generation-skipping taxes after 2009, meaning that anyone dying during 2010 is able to pass on his or her estate free of any federal estate, gift, or generation-skipping taxes.  However, state inheritance taxes may still be in effect.  But the 2001 law contained an expiration date:  all of the provisions of the 2001 law are set to expire on December 31, 2010.  Should Congress not act, then the pre-2001 estate tax will automatically reappear in 2011.

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When Is the Best Time To Make or Review Your Will?

If you have been asking yourself these question, the answer is likely "now."  There are several reasons why you may not want to wait.  The most obvious one is that tomorrow is promised to no one.  The second reason is that it is a good practice to review the terms of your Will on a yearly basis to assess the consequences of changes in family composition, financial updates, and changes in the tax law that may affect your estate.  The third reason is one that is often overlooked, that you may not always have the testamentary capacity to make a Will.   I have covered this topic in a previous post.

Making or changing a Will is a serious endeavor, and it should never be undertaken for negative reasons, such as to spite a relative or friend.  In New York, the making of a subsequent Will executed with all required formalities constitutes a revocation of any previously executed valid Wills and their codicils.  In New York,  a partial revocation by physical act, such as words added to a Will after it has been signed and witnessed, is not recognized and will have no effect on the Will.

A Will can also be revoked if it is destroyed by a physical act.  If the subsequent Will is later destroyed by a physical act, such as cutting it up or burning it or crossing out the testator's signature, the prior Will that it replaced will not be revived in New York.  The earlier Will is legally invalid, and the decedent will have died intestate.

The case of Mabel Waingrow of Blooming Grove, New York provides a cautionary tale.  The owner of Town & Country Coffee Shop on Route 94, Waingrow died in 2003 at the age of 99 leaving an estate valued at $990,000.  She had outlined her husband, her son, and her siblings.  Her closest relatives were her five great-nieces and -nephews whom she never knew because they lived abroad.  A diligent attorney who prepared Waingrow's Will in 2000 had discovered the distant relatives.

Waingrow had closed her coffee shop when she had turned 90, and without the constant social interaction she soon became a lonely recluse, beset by thoughts that people were trying to steal from her.  To her rescue came Nick Stagliano, a former criminal investigator for the Orange County District Attorney's Office who befriended her and took care of her.    According to a story in the local Times Herald-Record, Stagliano was the only one present for her 99th birthday.

In 2001 Waingrow, who had a habit of writing a new Will to benefit whoever was friendliest to her and to spite those who had "unfriended" her, executed a new Will naming Stagliano as the sole beneficiary of her entire estate.  The next day, the Orange County Court named him Waingrow's legal guardian because she could no longer take care of her affairs.  Her great-nieces and -nephews were not informed of this appointment.

Five years after her death, one of her grand-nieces filed suit contesting the Will claiming undue influence . The case was settled shortly after the trial began.  Waingrow's five great-nieces and nephews received at least $500,000 of the estate, with the remainder going to Stagliano.  Stagliano also agreed to give up his role as executor of the estate.

In her multiple executions of Wills, Waingrow chanced revoking a valid Will because her failing mental health made her capacity to execute a valid Will questionable.  Had her 2001 Will been declared invalid  at trial due to undue influence, then she would have been deemed to have died intestate.

When a person dies without a Will, New York uses as its default an intestate distribution system called per capita (“each head”) at each generation. In this system, each person is weighed equally. By virtue of their presence on the family tree, no one can be disinherited.

New York also has a “laughing heir” statute (EPTL §4-1.1(6)). A “laughing heir” is someone entitled to inherit by law who is so remotely connected to the deceased that he or she would not feel any sorrow at hearing of the death. To prevent this occurrence, New York cuts off heirs at the grandchildren of the deceased: “For the purposes of this subparagraph, issue of grandparents shall not include issue more remote than grandchildren of such grandparents.” No one more remote, such as a great-grandchild, may inherit. After that, the property of the deceased escheats to the State.

Since Waingrow had no grandchildren, and since her siblings had predeceased her, her surviving grand-nieces and -nephews risked having the entire estate escheat to the State if they pressed having Waingrow's Will declared invalid because of undue influence on the part of Stagliano.  The prior Will executed in 2000 could not be revived under New York law.   Thus the only way that the grand-nieces and -nephews could be certain to receive any money from the estate was to settle with Stagliano.

The case of  Mabel Waingrow points out once again the necessity of working with an attorney who will  draft your Will and tailor it to your individual needs. Though it may seem contrary to nature, children at times do predecease their parents, as Mabel's son did, 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.  

It is also a good practice to make a yearly appointment with your attorney to review your Will.  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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Bobby Fischer's Endgame: The Perils of Dying Without a Will

When Bobby Fischer won the World Chess Championship from Boris Spassky in 1972 in Reykjavík, Iceland, no one could have predicted that this location would become the site of yet another contest involving Fischer, this time a posthumous battle over his $2 million estate.  Once a resident of Brooklyn, Fischer's U.S. passport had been revoked in 2004 following some incendiary anti-American and anti-Semitic remarks (though Fischer himself was Jewish).  The following year, Iceland granted him citizenship.  He died in Iceland in 2008 without a Will (intestate). 

According to the New York Times,  there are four claimants to Fischer's estate:  Jinky Young, Fischer's presumed daughter filing through her mother Marilyn;  Miyoko Watai, who claims that she was married to Fischer, and Alexander and Nicholas Targ, Fischer's nephews through his sister Joan. 

Last  month, Iceland's Supreme Court ordered the exhumation of Bobby Fischer's body in order to determine the legitimacy of Jinky Young's paternity claims.  The body was exhumed today and DNA samples were taken.  If the DNA samples establish Fischer's paternity, then Jinky Young will be declared his legal heir under Icelandic law.

All of the claimants have retained legal counsel to represent their interests in Iceland and, depending upon the results, these legal costs may never be recovered.  All of this could have been avoided had Fischer drafted a valid Will expressing his final wishes.  He could have made provisions for all of his loved ones, avoiding for them this long, protracted, and costly legal battle.

Your estate may not be the size of Bobby Fischer's, but you likely have loved ones to whom you would like to leave bequests.  Don't put off the decision to make a valid Will.  Consult with an attorney who will assist you in drafting a document that meets your unique needs.

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