By Peter K. Kelly
On occasion, testators during the course of their life make promises with respect to legacies or incur debts to people they intend to be beneficiaries of their Will. Executors sometimes take the position that a legacy is merely a satisfaction of a debt and is not deemed to be a gift in addition to the satisfaction of the debt.
The law is well-settled that "a legacy from a debtor to a creditor will be considered in satisfaction of the debt if the testator intended it to be." Matter of Revson, 86 A.D.2d 872, 874, 447 N.Y.S.2d 297 (2d Dep't 1982) [enhanced version available to lexis.com subscribers]. Whether a legacy to a creditor of the decedent is in satisfaction of a debt is a question of intention of the testator. The legacy will only be deemed in satisfaction of the debt when it is clear from the face of the Will and the particular circumstances of the case that the testator intended the legacy to be in satisfaction of the debt. The intention of the testator is controlling under the usual rule. In the absence of a contrary intention on the part of the testator, a legatee who is also a creditor may have both the legacy and the claim. Matter of Ball, 221 A.D. 228, 222 N.Y.S. 463 (2d Dep't 1927) [enhanced version], aff'd, 247 N.Y. 533, 161 N.E. 171 (1928).
The language of the Will in these cases is of primary import in analyzing the testator's intent. A testator who intends to fulfill his obligation by bequest in his Will can easily recite his intent to do so. In the absence of language in the Will showing affirmatively that claimed intention, the burden of establishing such intention is on the party seeking to effectuate it. Occasionally, extrinsic evidence is permitted as an aid in searching for the testator's intent. See, Matter of Pergament, 204 Misc. 384, 386, 123 N.Y.S.2d 150 (Sur. Ct. New York County 1953) [enhanced version]. The use of such extrinsic evidence to determine whether a legacy is in satisfaction or in addition to a debt is a question upon which the Courts have diverged. Subject to some exceptions, the general rule is that a legacy to a creditor which is equal to or greater than a debt will be deemed to be in satisfaction of the debt. This is a rule of construction giving rise to a presumption which yields in the face of an ascertainable intent by the testator. No presumption arises that a legacy is given in satisfaction of a debt where the Will contains the usual provision for the payment of debts by the testator, where the indebtedness is unliquidated, where the indebtedness is contracted after the date of the Will, or where it is based on a commercial instrument such as a note capable of transfer and the amount given by the Will is less than the amount of the indebtedness.
Even a bequest to a creditor of value equal to or greater than the debt is not necessarily regarded as a discharge of the debt unless it is apparent on the face of Will itself that such discharge was intended.
These kinds of problems typically occur in situations where a testator has agreed to make certain bequests either in a prenuptial or post nuptial agreement, part of a separation agreement or a divorce judgment. Finally, the relationship of the legatee to the testator can serve as some evidence of the testator's intention. When a legatee has a claim upon the testator as a natural object of their bounty in addition to the claim of a debt to him or her, the presumption is that the testator intended to gift the legacy in addition to his claim. Sheldon v. Sheldon, 133 N.Y. 1, 30 N.E. 730 (1892) [enhanced version]. In a recent case, the Nassau County Surrogate in Matter of Sosnow, N.Y.L.J., April 24, 2013, at 37, 2013 N.Y. Misc. LEXIS 1354 (Sur. Ct. Nassau County Mar. 12, 2013) [enhanced version], discussed the issue of whether third party beneficiaries of a contract by a grandfather to gift a percentage of his estate to certain of his grandchildren could enforce that agreement. The executor argued that specific legacies of $250,000 in the testator's Will to each of his grandchildren were in satisfaction of that obligation. The prior agreement was with the grandchildren's father, as part of the divorce from the grandchildren's mother. The Court held that the decedent was not aware of, and did not consider his obligations under the prior agreement with his then son-in-law to dispose of his estate in a certain manner. The draftsman testified that the decedent had not discussed the obligation with him at the time of the preparation of the Will. The Surrogate found that the bequest to all of his grandchildren of $250,000 each was not in satisfaction of his obligations under the agreement. The grandchildren petitioners' claim was found to be valid and enforceable.
The lesson of these cases is that in many instances whether a legacy is in satisfaction of a creditor's claim is a fact specific determination and the easiest way to insure that a testator's intent to have a legacy satisfy a debt is to explicitly deal with the same in the drafted instrument.
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