Many estate litigators are familiar with the fight for
disclosure of personal income tax returns or financial documents. Perhaps you have represented the beneficiary
who insists upon the disclosure of a trustee's personal income tax returns
because they are certain some "funny business" is going on, or it will make
them cave to settlement demands. It
seems clients are always seeking disclosure of an adversary's personal
finances. Whether it is legitimate or
simply curiosity, income tax returns are not discoverable absent a "strong
showing that the information is indispensible to the claim and cannot be
obtained from other sources." Matter of Herscher, N.Y.L.J., Aug. 18, 2012, at 22 (Sur. Ct. New York County)
Matter of Herscher is an interesting
analysis of this standard. The trust at
issue had been established by the parties' mother. The children shared equally in the trust's
remainder, but Son objected that the distribution was improperly delayed. Son demanded disclosure of Daughter's tax
returns to ensure that all trust assets were accounted for and there were no
improper payments by the trustee.
Daughter sought Son's tax returns based upon an informal contention by Son
that he may have suffered damages due to her tax accounting for the trust, even
though the claim was not part of Son's formal objections.
York County Surrogate's Court looked at each claim separately and determined
that Daughter's personal income tax returns were discoverable because of the
significant allegation (supported by documentary evidence) of fiduciary
misconduct, including commingling of trust assets with the trustee's personal
assets. Daughter's returns were initially
provided for an in-camera review by the Court.
However, since no formal objections placed Son's income tax returns at
issue, Daughter failed to meet even a relevance standard, much less the higher
standard needed for disclosure. A
protective order was thus issued preventing disclosure of Son's returns.
case, Matter of McClusky, N.Y.L.J., Oct.
19, 2012 (Sur. Ct. Nassau County),
involved allegations of imprudent investing by the trustee of a testamentary
trust. The trustee requested objectant's
personal investment portfolio to determine whether the objectant would have
chosen to sell or retain the trust securities, had the trustee distributed the
securities to the objectants on an earlier date. Trustee hoped this would offset any damages
resulting from his retention of the trust securities by showing the objectants
would not have sold the securities during that time period, even if they had
been able to do so.
the request, the Court found that the trustee was positing false logic in arguing
that an imprudent trustee can offset any losses resulting from his mistakes if
he or she can show that the beneficiaries would have made the same
mistakes. This incorrectly implies that if
the beneficiaries themselves failed to meet the investment standard set by the
Prudent Investment Act, they are not entitled to recovery. To the contrary, it is the trustee who owes
the fiduciary duty to the beneficiaries, regardless of what the beneficiaries
may or may not have done.
by these recent cases, confidential financial information of parties is
protected from disclosure absent the necessary strong showing that the
information is indispensible. Rather
than a protracted disclosure battle, counsel should consider alternatives including
stipulated facts or other less invasive disclosure.
Jennifer F. Hillman is an attorney at Ruskin, Moscou
Faltischek, P.C., Uniondale, New York where her practice focuses in the area of
trust and estate litigation. She can be
reached at firstname.lastname@example.org
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