Posts tagged with "constructive trust"

Provisions in A Prenuptial Agreement can be a Sufficient Basis to Establish Constructive Trusts on Estate Assets

In re Chantarasmi, 938 N.Y.S.2d 762 (N.Y. Sur. 2012)

In a recent case before the Surrogate’s Court in Westchester County, New York, the co-administrators of a deceased father’s estate and guardians of property of his minor children sought to impose constructive trusts on a portion of the estate. The court authorized the guardians to establish trusts for the benefit of the decedent’s children.

In June 2002, the decedent and his wife entered into a prenuptial agreement under which the wife waived her rights to the decedent’s estate in the event that they did not have children. If the couple were still married and had children at the time of his death, the prenuptial agreement provided that the decedent would leave an amount equivalent to 30-percent of his gross estate to a trust for his wife. The trustees of this trust would be the wife, the decedent’s father and the decedent’s brother. The same clause in the prenuptial agreement provided that the decedent would leave an amount equivalent to 70-percent of his gross estate to one or more trusts to be established for the sole benefit of his children, upon the terms specified in the decedent’s will. The trustees for the children’s trusts would also be the wife, the decedent’s brother and the decedent’s father. In December 2009, the decedent died in an accident before making his will. He was survived by his wife, his eight-year-old son and his seven-year-old daughter.

Upon the decedent’s death, the co-administrators distributed 30-percent of the net estate to the marital trust. However, the absence of a will meant that there were no provisions to establish the trusts for the benefit of the decedent’s children. Therefore, the co-administrators of the decedent’s estate, who were also the guardians of property of his minor children, petitioned the court to impose a constructive trust on 70-percent of the net estate and authorize them to transfer such funds to the individuals named as trustees in the prenuptial agreement in order. The co-administrators proposed to establish two irrevocable trusts, one for the son with 35-percent of the net assets and one for the daughter with 35-percent of the net assets. Under the terms of each proposed trust, the trustees would have full discretion to pay to, or apply for the benefit of, any or all income and/or principal to the beneficiary during the trust period. Each proposed trust would make payments of principal upon the beneficiary attaining age 25 and age 30. Each trust would pay the balance of the principal and terminate upon the beneficiary attaining age 35. The co-administrators also proposed various exculpatory clauses and broad administrative powers clauses.

In New York case law, it is well settled that a contract between spouses that provides for distribution of one’s estate to the other, or to their children, may be enforced against the deceased spouse’s estate. In re Granwell, 228 N.E.2d 779 (N.Y. 1967); see also, In re Cohen, 629 N.E.2d 1356 (N.Y. 1994). Because the decedent did not leave a will, he breached the terms of his prenuptial agreement regarding the establishment of trusts for his children. Therefore, the Surrogate Court held that this breach warranted imposition of a constructive trust, and the guardians of the property of the minor children could enforce the prenuptial agreement in equity by imposing a trust upon 70-percent of the net assets of the decedent’s estate.

Although a constructive trust may be imposed, the Surrogate Court also considered whether it may authorize the guardians to establish the children’s irrevocable trusts under the proposed terms. The court found the instant case differs from precedents in New York case law because, in the instant case, the agreement clearly stated that the decedent would provide certain terms and conditions of the trust in his will. Therefore, the Surrogate Court had to construe the missing terms from the intents and purposes expressed by the decedent in the prenuptial agreement.

The prenuptial agreement clearly defined three of the necessary elements of a trust agreement by designating beneficiaries, trustees and trust assets; however, the duration of the trust and the distribution of assets during the trust’s administration were left for the decedent to provide in his will. In absence of the decedent’s will, the Surrogate Court construed the decedent’s intent as desiring the trust to continue for the period necessary to accomplish its purpose. When the trust arises from another agreement, such as the prenuptial agreement in the instant case, the purpose of that agreement becomes relevant to determining the trust period. In examining the relevant provision of the prenuptial agreement, the Surrogate Court construed the decedent’s intent to be that trusts provide financial support for the children after the decedent’s death and free their mother from administering the children’s assets under a join guardianship with the Clerk of the Court. Because the decedent sought to hold the assets in trust, the Surrogate Court inferred that the decedent did not want the children to receive their shares of his estate at the age of majority. Because the obligation to support the children was not specifically limited to age 21, the Surrogate Court inferred that the decedent contemplated that the trustees would administer the trust for a longer period. The same analysis was applied to ascertain the decedent’s intent with regard to the distribution of trust funds. Taking these inferences as a whole, the court construed that the decedent’s intent was for each children’s trust to continue for a period necessary to accomplish its purpose by fairly and impartially distributing income and/or principal for the benefit of the children during their minority and to pay principal at fixed ages. Therefore, the Surrogate Court concurred with the trustees, duration of the trust and distribution of assets proposed by the co-administrators

Although the court granted the imposition of the constructive trusts on 70-percent of net assets for the children’s benefit and concurred with the necessary elements of the trust, the court found that several of the proposed exculpatory clauses and administrative powers were in violation of New York law. These same clauses would not have been enforceable had the decedent created them under a will. Therefore, the court ordered the guardians to redraft the proposed trusts in accordance with the fiduciary powers outlined in New York Law, N.Y. Estates, Powers and Trusts Law § 11-1.1 (MicKinney 2011).

The court granted the guardians’ application to enforce the prenuptial agreement and to authorize the establishment of trusts for the benefit of the decedent’s children. The guardians were ordered to provide copies of the revised proposed trusts within 60 days of the decision.

Should you have any questions relating to wills, trusts, estate planning or other personal asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.
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Connecticut Superior Court denies Prejudgment Remedy and declines to impose a Constructive Trust

Connecticut Superior Court denies Prejudgment Remedy and declines to impose a Constructive Trust

Marinelli v. Estate of Marinelli, 2011 Conn. Super. LEXIS 1857 (2011)

 

The plaintiff, Michael Marinelli, brought an action against Joanne Marinelli, the executrix of the Estate of Anthony V. Marinelli, Jr. (the “Estate”) and the trustee of the Anthony V. Marinelli, Jr. Revocable Trust (the “Trust”).  The decedent, Anthony V. Marineeli, Jr., fraudulently induced the plaintiff, his brother, to believe that he would receive a 50% ownership interest in real property according to the plaintiff.  A family car repair business was operated on the real property in question and the plaintiff sought to impose a constructive trust.  The plaintiff filed an application for a prejudgment remedy against the Estate and the Trust pursuant to Conn. Gen. Stat. § 52-278d.

The Court held a hearing on the application and found there was an absence of probable cause to believe the plaintiff would prevail.   The plaintiff’s father clearly transferred title of the real property to the decedent who maintained the car repair business and assumed liability for all of its debts.  The evidence presented indicated that the plaintiff voluntarily relinquished his interest in the car repair business.  The apparent representations by his father and brother indicating that the plaintiff would be “taken care of” were imprecise assurances that did not persuade the Court.   There was no evidence of wrongdoing engaged in by the decedent.    As a result, the plaintiff’s application for a prejudgment remedy was denied.

Should you have any questions relating to wills, trusts, estates or probate issues generally, please feel free to contact Attorney Russell J. Sweeting, a lawyer in the firm’s Westport, Connecticut office in Fairfield County by telephone at (203) 221-3100 or by e-mail at rsweeting@mayalaw.com.

Trustees May Evict Beneficiaries from Real Property Held by the Trust

Trustees May Evict Beneficiaries from Real Property Held by the Trust

Dudek v. Dudek, HDSP-150182, 2011 WL 767790 (Conn. Super. Ct. Feb. 9, 2011) aff’d, 136 Conn. App. 902, 44 A.3d 222 (2012)

In a case before the Superior Court of Connecticut, a sister, acting in her capacity as trustee of the family trust, brought a summary process action for possession of two properties against her brother, a beneficiary of the trust, alleging that his original right or privilege to occupy the contested properties had been terminated. The trial court entered judgment for immediate possession of the subject properties in favor of the trustee. The Connecticut Appellate Court affirmed this ruling in a later court proceeding.

Since 2006, the contested properties had been held in trust by the family trust, which was created by the siblings’ father and funded with his assets upon his death that year. The trust instrument named the sister as the trustee of the family trust and clearly laid out her duties. The brother lived at the contested properties for almost his entire life, and provided physical care and support to his parents at the properties in the years before their death. While the brother provided care for his parents, he did not pay rent to them because no rent was requested. After his parents’ death, the brother remained in possession of the contested properties, and did not pay rent or other monies to the trust. The trust paid all the real estate taxes, insurance bills and most utility bills for the properties. The sister alleged that the brother engaged in negative behaviors that prevented her from properly managing the properties as trustee. Such alleged behaviors included preventing an insurance company representative from inspecting the premises, which resulted in the loss of insurance on the property, and denying her access to the properties. She also alleged that her brother was unwilling to cooperate with her relocation to a portion of the property and to conduct repairs to another portion of the property so that it could be rented out to generate income for the trust.

According to Connecticut law, Conn. Gen. Stat. § 47a-23(a)(3), the essential elements of a summary process action are: (1) the plaintiff is the owner of the property; (2) the defendant originally had a right or privilege to occupy the premises but such right or privilege has terminated; (3) the plaintiff caused proper notice to quit possession to be served on the defendant to vacate the premises on or before a certain date; and (4) although the time given the defendant to vacate in the notice to quit possession has passed, the defendant remains in possession of the premises. The general burden of proof in a civil action is on the plaintiff, who must prove all the essential elements of the cause of action by a fair preponderance of the evidence. Upon reviewing the facts of the case, the trial court determined that that the trust was the legal owner of the contested properties, the actions that the sister took related to the summary process action were within her powers as trustee, and that she had established all the remaining essential elements of her case by a fair preponderance of the evidence.

The brother asserted several special defenses related to the nature of the family trust: (1) the intent of the grantors was to allow him to remain in possession of the subject premises during his lifetime; (2) as a trust beneficiary in current possession of the premises, he is co-owner of the premises and not subject to a summary process action; (3) his beneficial interest in the trust generally equates to an equitable interest in the individual assets of the premises as part of the trust estate; and (4) a constructive trust should be imposed on the premises based on the grantor’s promise that he could remain in possession for his lifetime and his sister would be unjustly enriched if he were to be dispossessed from the premises. Defendants have the burden of proving the allegations in their special defenses by a fair preponderance of the evidence.

According to Connecticut case law, a court’s role is to determine the meaning of what the grantor stated in the trust instrument and to not speculate upon what the grantor intended to state in the instrument. Connecticut Bank & Trust Co. v. Lyman, 148 Conn. 273, 278-79, 170 A.2d 130 (1961). Expressed intent must control the court’s interpretation of the instrument. Therefore, the plain language of the trust instrument itself, rather than extrinsic evidence of actual intent, is determinative of the grantors’ intent. Cooley v. Cooley, 32 Conn.App. 152, 159, cert. denied, 228 Conn. 901 (1993) (citing Heffernan v. Freedman, 177 Conn. 476, 481, 418 A.2d 895 (1979). Because the court found nothing within the plain language of the trust supported the brother’s proposition that the grantors intended for him to remain in possession of the contested properties during his lifetime, the court found that brother failed to establish his first special defense.

Connecticut case law further establishes that the trustee holds legal title and legal ownership of the property in the trust. Fandacone v. Fandacone, Superior Court Judicial District of New Britain, Housing Session, Docket No. NBSP-052634 (March 16, 2010, Gilligan, J.). A beneficiary of the trust enjoys only a beneficial interest in trust assets. Despite the beneficial or equitable interest that a beneficiary may hold in the trust estate, this does not equate to legal or equitable title to the individual assets of the trust. Stepney Pond Estates, Ltd. v. Monroe, 260 Conn. 406, 433 n. 28 (2002). Therefore, the court found that the brother failed to establish his second and third special defenses.

A constructive trust arises where an individual who holds title to a property is subject to an equitable duty to convey it to another on the grounds that he would be unjustly enriched if he were permitted to retain the property. See Filosi v. Hawkins, 1 Conn.App. 634, 639 (1984); Gulack v. Gulack, 30 Conn.App. 305, 311-12 (1993). A constructive trust may also be imposed to prevent the abuse of a confidential relationship. Schmaling v. Schmaling, 48 Conn.App. 1, 13, cert. denied, 244 Conn. 929 (1998). In order to find that a constructive trust exists and should be imposed, the court must first find that a special or confidential relationship existed between the parties. Id. In Connecticut, two types of confidential relationships give rise to a constructive trust: (1) where one party is under the domination of another and (2) where circumstances justify one party’s belief that the other party’s actions will be guided by his or her welfare or instructions. See Riccio v. Riccio, 75 Conn.App. 556, 559 (2003); Starzec v. Kida, 183 Conn. 41, 43 n. 1 (1981). The court found that the brother did not establish clear and satisfactory facts from which a constructive trust may be implied. He did not establish that his sister, in her capacity as trustee, had an equitable duty to convey the contested properties to him. The trust instrument did not dictate that the brother’s individual welfare was not the sole focus of the family trust; instead, the instrument dictated that the sister’s fiduciary duties as trustee extended to all trust beneficiaries. The brother did not establish that his sister, in any capacity, misappropriated or attempted to misappropriate trust assets. Finally, the brother did not establish that his sister, as an individual, would be unjustly enriched if the family trust were to regain possession of the contested properties. The sister would still be bound by the trust instrument, and the brother would still retain his recourse to legal action to safeguard his rights as a trust beneficiary. Therefore, the court found that the brother failed to establish his fourth special defense.

Because the court found that the sister had established the essential elements of her cause of action with a preponderance of the evidence and that the brother failed to establish any special defense, the court entered judgment for immediate possession of the subject properties in favor of the sister, acting in her capacity as the trustee of the family trust.

Should you have any questions relating to real estate or personal asset protection issues, please do not hesitate to contact Attorney Susan Maya, at SMaya@Mayalaw.com or 203-221-3100, and Attorney Russell Sweeting, at RSweeting@Mayalaw.com or 203-221-3100, in the Maya Murphy office in Westport, Fairfield County, Connecticut.

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