Dishonesty as a Grounds for Ineligibility as a Fiduciary

Dishonesty as a Grounds for Ineligibility as a Fiduciary

 Pursuant to NY Surrogates Court Procedure Act (SCPA) 707, letters may issue to a person authorized by law to be a fiduciary, except in the circumstances specifically enumerated in the statute. The allegation that a petitioner is "incompetent to execute the duties of his office by reason of ...dishonesty" is one frequently utilized by respondents because of its subjective nature. The term "dishonesty" certainly could encompass a broad range of complaints that a respondent may allege against a petitioner seeking letters. However, this is more than a little white lie or even a more egregious dishonest act. As set forth in Matter of Latham, 145 A.D. 849, 130 N.Y.S. 535 (1st Dep't 1911) [enhanced version available to lexis.com subscribers],

the dishonesty contemplated by the statute must be taken to mean dishonesty in money matters from which a reasonable apprehension may be entertained that the funds of the estate would not be safe in the hands of the executor.

In assessing eligibility, it is tantamount that the testator's choice of executor is not to be lightly disregarded. While a nominated fiduciary's "character failings may be offensive to others...unless they, in the aggregate, clearly demonstrate unworthiness for the responsibilities to be undertaken, they cannot bar appointment." Matter of Gottlieb, 75 A.D.3d 99, 902 N.Y.S.2d 505 (1st Dep't 2010) [enhanced version available to lexis.com subscribers]. The burden of proof is on the party making the allegation to show that the dishonest conduct in financial matters is so characteristic of petitioner that entrusting the administration of the estate to him or her would involve a genuine and serious risk that the funds of the estate would not be safe in their hands. Matter of Walsh, 16 Misc. 3d 1109A, 847 N.Y.S.2d 899 (Sur. Ct. Richmond County 2007) [enhanced version available to lexis.com subscribers].

Matter of Gottlieb is an interesting case in this regard. Therein, the petitioner for letters of administration c.t.a. had two traffic violations more than 15 years old, a federal lien from ten years prior of less than $30,000, several small civil judgments, as well as allegations that he failed to comply with court directives in other matters and unsubstantiated allegations that he was an alcoholic. Matter of Gottlieb, 75 A.D.3d 99, 106, 902 N.Y.S.2d 505 (1st Dep't 2010) [enhanced version available to lexis.com subscribers]. The First Department affirmed the lower court in finding that the allegations did not rise to a level to preclude the issuance of letters c.t.a., despite the court's acknowledgement of the petitioner's "less than sterling character." Matter of Gottlieb, 75 A.D.3d 99, 107-108, 902 N.Y.S.2d 505 (1st Dep't 2010) [enhanced version available to lexis.com subscribers].

It is not necessary that the actions showing dishonesty involve the decedent or the estate in question. An application for letters of administration was denied where it appeared that one of the petitioners for letters had been convicted of petit larceny and was under an indictment for perjury. Matter of Cohen, 254 A.D. 571, 2 N.Y.S.2d 764 (2d Dep't 1938) [enhanced version available to lexis.com subscribers], order aff'd on other grounds, 278 N.Y. 584, 16 N.E.2d 111 (1938) [enhanced version available to lexis.com subscribers]. The petitioner was not a felon, another ground for ineligibility under SCPA 707(1)(d), however the dishonest and financial nature of the crimes committed lead the court to determine he was ineligible to serve as a fiduciary.  

An objectant who seeks to disqualify a nominated fiduciary on the grounds of dishonesty must do more than simply allege dishonesty. Once charged, the allegations must be proven, and a hearing may be necessary to determine the truthfulness of allegations where the facts are not sufficiently made out by the pleadings.

For example, in Matter of Garfunkel, 2 Misc. 2d 603, 152 N.Y.S.2d 911 (Sur. Ct. Kings County 1956) [enhanced version available to lexis.com subscribers], the respondent's allegations that "a great suspicion" should attach to the conduct of the petitioners was insufficient to deny letters. In Garfunkel, the respondent failed to allege any actual facts concerning concealment of estate assets by the petitioner, but merely that he suspected the petitioner had committed fraud and that he intended to discover additional estate assets. The court held that each of these allegations were properly within the purview of a discovery proceeding-after probate. "There is a clear line of demarcation between a finding that a nominated executor is dishonest in a degree requiring rejection of letters and a finding that a fiduciary is possessed of unreported assets of the estate with which he is chargeable."Matter of Garfunkel, 2 Misc. 2d 603, 606, 152 N.Y.S.2d 911 (Sur. Ct. Kings County 1956) [enhanced version available to lexis.com subscribers].

Before challenging the eligibility of a nominated fiduciary on the grounds of dishonesty, practitioners should consider whether any concerns would be better addressed in a SCPA 2103 turnover proceeding, or objections in an accounting proceeding.

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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 jhillman@rmfpc.com

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