{Read in 6 Minutes} As a Trust and Estates attorney, I do estate planning for many people. This often includes a Will, Power of Attorney, Health Care Proxy, and a Living Will. Some attorneys are big proponents of people signing inter vivos (lifetime) trusts as a substitute for simple Wills and probate proceedings. I am not a fan of this, as I think that probate in New York is generally very efficient and cost-effective. However, a Trust may be appropriate for some people on certain occasions. If someone has a Trust, what happens if the beneficiaries or disinterested family members choose to dispute the terms of the Trust after the person has died?
Some people are under the mistaken idea that, by having a Trust instead of a Will, they are nullifying any possibility of an inheritance dispute. That is simply not the case. Just like there is no such thing as an iron-clad Will, there is no such thing as an iron-clad Trust. The difference is that the people with standing to file objections to the Trust do not get a Court notice giving them a filing deadline. However, that does not mean they cannot object, and it’s often easier for them to object. Instead of the Court giving them a deadline by which they must make their voices heard, for most types of Trusts, the people wishing to challenge these Trusts can do so anytime for up to six years after the deceased’s death.
That is an incredibly long time, and the Trustee (who fills the Executor role when someone has a Trust instead of a Will) faces a dilemma. Should they distribute the money to the beneficiaries and pay creditors, or is the likelihood of a dispute so high that they want to hold onto the vast majority of the Trust funds until the expiry of these six years? That leads to much uncertainty and, frankly, many pissed-off beneficiaries.
If there’s going to be Trust litigation, what will happen? Well, there are a few things to consider.
•Which Court handles the dispute?
In general, the Surrogate’s Court handles the affairs of the recently deceased and the rights of their beneficiaries and creditors.
However, under New York State law, two courts have concurrent jurisdiction to handle a Trust inheritance claim: the Surrogate’s Court and the New York State Supreme Court. In New York State, the Supreme Court is our trial-level Court. There is one in each of New York’s 62 counties. Unlike the judges of the Surrogate’s Court who are heavily specialized in inheritance disputes, the judge in the Supreme Court may or may not have ever handled a dispute like this before. It may go more quickly, or significantly slower than it would in the Surrogate’s Court. The Court Attorneys, who usually try to help parties settle their claims, often are not as effective without the legal and procedural knowledge involved.
•Transfer
Sometimes a party will commence a Trust dispute in the New York State Supreme Court. The Supreme Court has the authority to transfer the matter back to the Surrogate’s Court, usually at the request of one of the parties. If the Surrogate’s Court is already handling another proceeding related to this deceased — for example, maybe the deceased had some assets outside of their Trust and the Court issued Letters to an Executor, an Administrator, or the Voluntary Administrator of a Small Estate. The Supreme Court will more likely transfer the case back to the Surrogate’s Court.
Also, the New York State Supreme Court can decide that the Surrogate’s Court is the better-equipped Court to handle this dispute, so the parties may have all of their legal fees in the Supreme Court for filing the initial papers and motions, only to have to start all over again in the Surrogate’s Court.
I am a big fan of starting these proceedings in the Surrogate’s Court from the beginning. If there is a challenge, and I’m representing the Trustee or a Trust beneficiary, I will bring a proceeding in the Surrogate’s Court to protect my client. If I’m representing someone who has been disinherited, I will always carry the proceeding to the Surrogate’s Court as opposed to the New York State Supreme Court. I find things move much more quickly, and the people deciding the case are much better versed in the issues at hand. It also spares my clients thousands of dollars in unnecessary legal fees to start a proceeding in the New York State Supreme Court, only to transfer it to the Surrogate’s Court later.
Ultimately, clients make decisions about whether or not they should have a Trust. Personally, I am for them for most people, however, they are more appropriate for some. These are things to consider when deciding whether to have a Will or a Trust.
For more information on this topic, please contact me.