Matter of Malitz Family Trust
Attorneys and Parties
Brief Summary
Trusts and estates dispute over whether an ostensibly irrevocable family trust was effectively revoked, and whether trust property later conveyed by the grantor belonged to the trust or to a daughter who received the property by deed.
The Surrogate's Court held that the grantor had authority under the trust to alter distribution percentages among the beneficiary class, even to make Christina the sole beneficiary, but denied summary judgment because it found a triable issue of fact as to whether the revocation document had been delivered to the co-trustees.
The Appellate Division reversed the denial of Allison Angarola's summary judgment motion, dismissed the petition/complaint, and directed entry of a decree declaring that the Malitz Family Trust was revoked and that Allison is the owner of the property. It affirmed the denial of Jeanne Malitz's cross-motion.
The court held that the trust language allowed the grantor to reduce beneficiaries' shares to zero, making Christina the sole beneficially interested person whose consent was needed under EPTL 7-1.9 [allows the creator of a trust to revoke or amend it by a written instrument with the acknowledged consent of all persons beneficially interested; if the trust instrument was recorded, the revocation or amendment and consents must also be recorded]. The co-trustees had notice because they executed and recorded a deed returning the property to the grantor in concurrence with the revocation, and the petitioner was barred by equitable estoppel, waiver, and laches after waiting until the grantor's death to challenge the revocation.
Background
In 2006, Muriel Malitz created the Malitz Family Trust, funded with the family residence, stock, and cash, and named her daughters Jeanne Malitz and Jennifer Alt as co-trustees. The trust provided that, upon her death, the residence would pass in equal one-fifth shares to five of her children and the remaining trust proceeds would be divided equally among all six children. The trust was described as irrevocable, but it expressly reserved to the grantor the power to change the percentages of distribution among the class of beneficiaries, provided the change was in writing and delivered to the trustees. On February 11, 2015, the grantor signed an amendment giving Allison Angarola a right of first refusal to purchase the residence and reallocating 100% of the property's sale proceeds and 100% of the remaining trust proceeds to Christina Malitz. That same day, the grantor and Christina signed a revocation document stating that the trust was revoked under EPTL 7-1.9 [allows the creator of a trust to revoke or amend it by a written instrument with the acknowledged consent of all persons beneficially interested; if the trust instrument was recorded, the revocation or amendment and consents must also be recorded]. The grantor's estate planning attorney sent letters to the co-trustees stating that the trust was being revoked and enclosing a deed for return of the residence to the grantor. On February 19, 2015, the co-trustees executed a deed conveying the property from the trust back to the grantor, expressly reciting that it was done as a result of and in concurrence with the trust's revocation. In May 2016, the grantor deeded the property to Allison. After the grantor died in September 2016, Jeanne commenced this hybrid turnover proceeding and declaratory judgment action in 2017, claiming the trust had not been properly revoked because the co-trustees were never given the revocation document.
Lower Court Decision
The Surrogate's Court denied Allison's motion for summary judgment and denied Jeanne's cross-motion for summary judgment. Although it concluded that the trust's reservation of power allowed the grantor to alter distribution percentages even to zero, thereby making Christina the sole beneficiary for purposes of consent, the court found a factual issue concerning whether the revocation document had actually been delivered to the co-trustees. Because of that perceived factual dispute, it declined to declare either that the trust was revoked or that it remained in full force and effect.
Appellate Division Reversal
The Appellate Division held that Allison was entitled to summary judgment. It ruled that a grantor's retained power to change distribution percentages among a class of beneficiaries includes the power to reduce a beneficiary's share to zero, so the grantor validly made Christina the sole beneficially interested person. The court further held that, in substance, the revocation was properly effected because the co-trustees executed and recorded the February 2015 deed returning the property to the grantor and expressly referenced the trust's revocation, which gave them notice and also notified third parties through recording. The court also found that Jeanne, having executed the deed as co-trustee and then waiting until after the grantor's death to object, was barred by equitable estoppel, waiver, and laches. It therefore reversed the order insofar as appealed from, granted Allison's motion branches seeking dismissal and declaratory relief, remitted for entry of a decree declaring the trust revoked and Allison the property's owner, and affirmed the denial of Jeanne's cross-motion.
Legal Significance
The decision confirms that where a trust instrument reserves to the settlor the power to change distribution percentages among an existing class of beneficiaries, that power can include reducing a beneficiary's share to zero and effectively leaving only one beneficially interested person. It also shows that New York courts may treat revocation as effective in substance where trustees themselves execute and record a deed implementing the revocation, even if they later dispute formal delivery of the revocation paper. In addition, trustees or beneficiaries who participate in a transfer consistent with revocation may later be barred from challenging it by equitable estoppel, waiver, and laches.
A trustee who signs and records a deed returning trust property to the settlor in reliance on a stated trust revocation may not later undo that transaction after the settlor's death, especially where the trust gave the settlor authority to reduce other beneficiaries' shares to zero and the challenger's delay caused prejudice.