New York Court Dismisses Complaint But Leaves Door Open to Challenge In Terrorem Clause
Application of Follman, 81 Misc.3d 275(N.Y. App. Div. 2023)
Ahron Follman (“Petitioner”) is the son of Esther Follman and Lazar Follman (“Decedent”). Decedent died in 2018 and his wife, Esther, died in 2021. In 1996 and 2011, Decedent and his wife created trusts in which their children and issue were treated almost equally. Those trusts were funded with interests in various LLC’s which owned parcels of income-producing property. However, in 2016 and 2017, Decedent’s numerous trusts, as well as his wife Esther’s testamentary instruments, were reportedly replaced by new trusts and a will in 2017 that greatly favored Avraham, only one of Decedent’s four children.
Petitioner claimed that the assets once held by the 1996 and 2011 trusts were improperly transferred into the 2017 trusts as a result of undue influence. The 2017 trusts contained in terrorem clauses that specifically provided for forfeiture of any inheritance under the instruments by anyone who challenged the terms of the trusts or any transfers made by Decedent or his wife during their lifetimes.
Petitioner moved for summary judgment, seeking a ruling that the in terrorem clauses contained in the 2017 trusts would not be triggered by his filing of a petition seeking, among other things, information and/or accountings concerning Decedent’s trusts and assets. Petitioner also sought reimbursement of his legal fees and expenses in bringing the action.
Avraham was the Trustee of the 2017 trusts. He filed a cross-motion for summary judgment, claiming that Petitioner had, in fact, already triggered the in terrorem clauses. According to Petitioner, the departure from Decedent’s prior estate plan and the transfer of Decedent’s assets and those of the earlier trusts were the result of Avraham’s undue influence over Decedent and his misuse of a power of attorney in the final years of Decedent’s life.
Petitioner argued that the in terrorem clauses should not be triggered by: the commencement of an inquiry pursuant to New York’s Surrogate’s Court Procedure Act § 2103 concerning what properties were held by the 1996, 2011, and 2017 trusts and their subsequent transfers; a compulsory accounting by Avraham, as attorney-in-fact; or a compulsory accounting of various LLC’s of which Decedent was a member. Petitioner claimed that these proceedings only sought information and did not challenge the probate of Decedent’s will, any provisions in the will, any transfer made by Decedent or Esther, or the validity or administration of any trust or LLC.
In his cross-motion, Avraham argued that not only should the petition be denied as essentially seeking advice and direction without the necessary showing of extraordinary circumstances under SCPA § 2107[2], but also that the in terrorem clause had already been triggered.
The court noted that in terrorem clauses are enforceable, although not favored, and that where the clauses are clear and unambiguous, there is no reason for the necessity of a court opinion regarding the supposed effect of these clauses. Although it has no bearing on this particular case, the court noted that similar to many other cases the portion of the in terrorem clause concerning the “administration” of the trusts might be problematic. Specifically, any attempt to totally preclude a beneficiary from questioning a fiduciary’s conduct by way of an accounting or from filing objections thereto will result in a finding that the pertinent language is void as contrary to public policy. See Matter of Egerer, 30 Misc.3d 1229 (Surr Ct., Suffolk County 2006).
The Court rejected the “kitchen sink” approach of Petitioner’s claims and ultimately denied the petition, stating that “Although a construction proceeding is appropriate to determine if certain conduct is violative of an in terrorem clause, the instant application is not seeking an opinion on a discrete issue, but rather appears to be more in the nature of a proceeding for advice on how to draft a pleading to obtain information from Avraham without triggering the terrorem clauses. On the facts before it, the Court declines the opportunity to offer such legal advice” (internal citation omitted).
The court denied Petitioner’s motion for summary judgment and limited Avraham’s cross-motion for summary judgment to dismissal of the case. The court noted that the mere consideration of taking legal action cannot be a basis for triggering an in terrorem clause, and there was no basis for the imposition of counsel fees.