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Petition to Invalidate Trust in New York – How Does it Work, FAQ and Pitfalls

Petition to invalidate trust needs to have grounds if it is to be successful. Trusts are normally created in order to minimize estate tax liability, protect assets from creditors, provide income to the disabled without disqualifying them from receiving government benefits, or exclude certain properties from the estate upon death.

In New York, the grantor / settlor / trustor must be of sound mind and free from undue influence when he establishes the trust. Only beneficiaries of the trust or individuals with a right to inherit under New York’s intestacy laws can file a petition to invalidate the trust.

Filing a petition to invalidate trust

Once the beneficiary or heir has decided to contest the trust and has sufficient documentary evidence to prove grounds for invalidity, you need an experienced estate litigation attorney to file the petition to invalidate the trust before the Surrogate’s Court.

Some reasons to invalidate a trust arise when a caretaker receives a larger share of the trustor’s estate or an heir was omitted in the trust. Here are some points to consider before filing a petition to invalidate a trust:

No contest clause

If the trust contains a no-contest clause, any beneficiary who contests the trust will lose his right to claim any trust assets if he loses the petition to invalidate the trust. For this reason, it is important that the beneficiary ensure that before filing any action, he has sufficient evidence to prove the invalidity of the trust.

Grounds for petition to invalidate a trust

Most often, grounds to invalidate a trust revolve only upon the soundness of mind of the trustor or the exertion of undue influence of a beneficiary on the trustor. Allegations of unsound mind should be supported by documentary evidence, such as the trustor’s medical records, history of substance abuse, or witness testimony. There is undue influence when you believe your loved one was instructed by a beneficiary to change their trust, omitting an heir, or give them a larger portion of the trust. An estate litigation attorney can assist in evaluating these documents.
The way to invalidate a trust in New York depends to some extent on whether the trust under consideration is revocable or irrevocable. Slightly different trust contest standards are applied. There has been a trend to apply more will challenge law to revocable trusts and more contract law to irrevocable trusts, the theory being that revocable trusts are more of a will substitute than an irrevocable trust. Whether will contest standards or contract dispute standards apply to a particular trust would depend on the circumstances of each case. Invalidating a trust in New York is best done with the assistance of a New York estate lawyer.

For a revocable trust, a court is likely to apply will contest standards. Because New York courts view revocable trusts as will substitutes, they tend to apply the same standards as wills when revocable trusts are contested:

  • Lack of Capacity – People who were elderly, weak or infirm are more likely to be shown to lack the capacity to make a trust in New York. The possibility of showing incapacity is greater for a decedent who was in the later stages of Alzheimers or Dementia, who was diagnosed with a terminal illness and who was under the influence of mind-altering medication. Here is more about lack of capacity. To overturn a trust based on lack of capacity, the challenger must show that the trust maker did not understand the following:
    1. The extent and nature of their property
    2. Their relationship to their relatives and other people affected by the trust
    3. How their trust is set up
  • Undue Influence – To overturn a trust based on undue influence, the contestant has to show that the deceased was influenced into making the trust. When the trust beneficiary is in a relationship of confidence with the trust maker and the trust beneficiary benefitted from that relationship in the trust, the court infers that the trust beneficiary must have influenced the trust maker. It would be up to the trust beneficiary who is inferred to have unduly influenced the trust maker to show that the inference is wrong and no undue influence took place.
  • Other Grounds – Grounds for a petition to invalidate a trust such as fraud, duress, forgery and undue execution can also be asserted, but they are less common.

In invalidating an irrevocable trust, the court is likely to apply contract standards. To show that the trust maker did not have the capacity to make a trust, the challenger an irrevocable trust in New York will have to show to the trust maker did not have the capacity to understand what a contract is and the consequences of the contract. To have consent to enter into the trust, the trust maker must have had the mental capacity to understand what the trust does, and must have acted voluntarily, without threats of force.

  • Advantages for the defender of the irrevocable trust – A challenge based on undue influence would not be as effective in an irrevocable trust, because undue influence tends not to be considered in contract law.
  • Advantages for the challenger of the irrevocable trust – A challenge based on mental incapacity could be slightly more effective in an irrevocable trust. Irrevocable trusts tend to be more complicated and harder to understand. Even their element of irrevocability itself is something that is hard to process for a person with diminished capacity.

Less capacity is required to make a will than is required to execute other legal documents or contracts (see Matter of Coddington, 281 App Div 143 [1952], affd 307 NY 181 [1954]). Using this logic, it is possible that an irrevocable trust requires a little more capacity than a revocable trust.

The law for invalidating trusts in New York is still not completely settled. It is not as easy as one would think to describe how a petition to invalidate a trust works in New York, because our law involving trust contests is currently in flux. A legislative advisory committee and bar groups have attempted to develop a unified approach to trust contests, and that attempt has failed. The statutory law is scarce in its guidance, and court cases have been contradictory at times. Courts decide trust contests by relying of a mixture of will contest and contract law, with a wide difference of opinion abounding.

In our opinion, invalidating a trust is best done in Surrogate’s Court. A petition to invalidate a trust can be brought either in the Supreme Court (New York name for a regular court) or the Surrogate’s Court, the Court dealing with matters of the dead. We bring usually bring our trust contests in the Surrogate’s Court, for two reasons. First, the surrogate’s court is more likely to apply the will challenge standard, and we think that it’s a more favorable standard to the trust challenger. And second, because a trust challenge deals with the matter for the deceased, there’s a chance that the attorney defending the trust may try to transfer it to the Surrogate’s Court anyway, causing an unneeded delay in trust litigation.

Watch out for hidden trusts. One of the confusing things about trust contests is knowing whether there is a trust in the first place. New York is a state that allows ultra-private trusts. For example, Florida requires a trustee to notify potential beneficiaries of the existence of a trust upon the death of the maker of the trust. Not so in New York. When a person dies in New York and leaves a will, the executor probating the will has an obligation to notify the relatives of the deceased person, even if they are not in the will. Not so with a trust. A person can die and his relatives may never even find out that the deceased left a trust that cut them out of their inheritance. This is something to keep in mind when figuring out how to bring a petition to invalidate a trust in New York. If your relative died and it looks like they have no inheritance to leave to you, it may be possible that they’ve made a trust and have cut you out of it (or have simply transferred their property to someone else before they died).

When you don’t know if your relative made a trust, you can’t challenge the trust, since you don’t know if one exists yet. What we do for our clients is we open up an estate proceeding and appoint them as the administrator of the estate. That gives them the official New York certificate with the power to request information from banks, financial institutions and other entities. If our client finds that the assets of their deceased relative were transferred to a trust, our client can then bring a petition to invalidate a trust to try to claw those assets back into their deceased relative’s estate.

If you think that your loved one was taken advantage of when making the so-called “trust,” speak with a New York estate lawyer who is experienced in defending and prosecuting trust contests.

Statute of Limitations

In New York, a petition to invalidate the trust must be filed within six (6) years after the trustor’s death. To ensure that trust assets have not been completely distributed to the beneficiaries, it is always better to file this petition sooner rather than later.

A trust is a contract created by a grantor (the trustor or settlor), giving a third party (the trustee) power to hold, invest, or distribute his property for the benefit of one or more beneficiaries at a specific time or upon the happening of an event. A petition to invalidate trust undertakes a challenging premise that must be well supported if it is to be successful.

If you suspect a legal issue or problem in a trust that you are a party to, immediately seek legal advice from an experienced litigation attorney. You can call the Law Offices of Albert Goodwin at 212-233-1233 or 718-509-9774.