Before the court is a petition brought by Mary Monahan, the surviving spouse of Joseph Michael Monahan. Mary is the lifetime beneficiary of a credit shelter trust created under decedent's last will and testament, and she and the trust share a tenancy in common in the residential real property in which petitioner resides. Petitioner asks that her children, Margaret Smith and James Monahan, as co-trustees of the trust, be compelled to distribute funds pursuant to the terms of the trust. Petitioner also asks that the court direct the trustees to pay petitioner's claims for reimbursement of expenditures which she made in connection with the real property, and the cost of her home health companions. Petitioner also seeks an order compelling the trustees to enter into a reverse mortgage on the real property. Margaret, in her capacity as co-trustee, has indicated her willingness to provide the relief requested in the petition, but has been unable to do so without the cooperation of her co-trustee, James. Petitioner asks the court to remove James as co-trustee if he continues to refuse to provide petitioner with the relief she is seeking, and to charge James with costs and legal fees incurred in connection with this proceeding.

Joseph Michael Monahan died on September 2, 1991, leaving a last will and testament dated April 18, 1991. He was survived by his wife, Mary, and their five adult children, Margaret, James, Mary Jayne Miller, Joseph Monahan and John Monahan. The will was admitted to probate and letters were issued to Mary as executor on November 19, 1991. On May 12, 1992, letters issued to Margaret and James as co-trustees of the credit shelter trust created under Article Second of decedent's will.

Under the terms of Article Second (1) of the will, Mary is to receive (i) all of the income from the trust at least quarter-annually, (ii) the greater of five thousand dollars or five percent of the aggregate value of principal annually if requested by Mary in writing (a "five and five demand"), and (iii) such amounts of principal as the co-trustees shall determine would be necessary for Mary's health, education, maintenance or support. Upon Mary's death, the corpus will be subdivided for the benefit of decedent's children in accordance with complex directions set forth in decedent's will. The decedent's interest in the tenancy in common was transferred to the trust, along with some securities and cash.

Companion proceedings have been filed with this court by petitioner and each of the co-trustees. In the context of these related matters, the parties executed two stipulations, parts of which are pertinent to the present matter. The first stipulation was signed by each of the two co-trustees and so ordered by the Surrogate on June 6, 2007. A second stipulation was signed on January 8, 2008 by each party's attorney. A copy of this 2008 agreement was provided to the court by James, as an exhibit to his verified answer to the petition now before the court.

The petition names both co-trustees as respondents, but the documents reflect Margaret's willingness to provide her mother with the relief requested. The court must determine whether James should be:

I. compelled to make distributions from the credit shelter trust

(A) pursuant to Mary's exercise of her five and five demand,

(B) in reimbursement of expenditures made by Mary which benefited the trust's interest in the real estate, and

(C) to repay Mary for payments made to her home health companions;

II. compelled to enter into a reverse mortgage on the real property;

III. removed as co-trustee if he refuses to make distributions and reimbursements or cooperate in obtaining a reverse mortgage; and

IV. charged with costs and legal fees incurred in connection with this action.

In the June 2008 stipulation, James agreed to take all steps necessary to obtain a home equity loan on the real property in the amount of $296,000. One-half of the loan proceeds were to be paid to Mary, individually, and one-half were to be paid to the co-trustees on behalf of the trust. The papers submitted by James indicate that this provision of the stipulation was performed.

The 2008 stipulation further provided that the trustees would then utilize the trust's one-half portion of the loan proceeds to pay for Mary's home health companions and for any claim filed by Mary in exercise of her five and five demand in the year 2008. In addition, James agreed to immediately assist Mary in obtaining a reverse equity mortgage on the real property. The application for the reverse mortgage was to have been filed within ten days of the stipulation. The proceeds were to be used to repay the home equity loan and pay a monthly sum to Mary. One half of this monthly payment would be deemed a distribution from the trust for Mary's support and living expenses. It does not appear that these terms of the stipulation have been fulfilled.

It is well established that courts favor stipulations and will set them aside only where there are grounds which would be sufficient to invalidate a contract (Hardenburgh v Hardenburgh, 158 AD2d 585 [2nd Dept 1990]; Daniels v Banks, 136 AD2d 675,676 [2nd Dept 1988]). Such grounds would include fraud, mistake or deceit (Daniels v Banks, 136 AD2d 675,676 [2nd Dept 1988]). In reviewing each of the issues raised by Mary's petition, the court

must consider the application of the stipulations, as well as the trustees' obligations under the will and applicable law.

"(ii) In each calendar year, including the calendar year in which my death shall occur, my said wife shall have the power, exercisable by an instrument in writing signed by her and delivered to my Trustees, to require my Trustees to pay to her or as she may designate out of the principal of such trust an amount not exceeding (a) Five Thousand ($5,000.00) Dollars or (b) five percent (5%) of the aggregate value of the principal of said trust at the time of the delivery of such instrument, whichever is greater.

The power to require principal in any calendar year conferred upon my wife by this paragraph shall expire on the last day of each calendar year and shall not be cumulative."

On October 26, 2006, Mary submitted a written document to the trustees in exercise of her five and five demand. It included an appraisal of the real property by a licensed residential appraiser. This was followed by a second written claim on December 11, 2006, which included a concurrent valuation of the marketable securities held in the trust. Based on these valuations, Mary demanded the amount of $22,504.00. Mary made a written demand on June 21, 2007 in exercise of her five and five demand for 2007 in the amount of $21,279.24. This demand was based on the real estate appraisal and an updated brokerage statement reflecting the contemporary value of the securities held in the trust, a copy of which was provided to respondent's attorney.

Respondent trustee does not dispute that Mary has properly exercised this power for 2006 [*4]and 2007, nor does he offer any proof that the valuations are incorrect. Rather, James contends that he commenced a proceeding against his co-trustee to compel an accounting and has not been provided with all of the information sought. On this basis, James argues that he is unable to determine the amount of the distribution which should be paid to Mary.

The court notes that a petition for judicial settlement of account was filed by Margaret on January 2, 2007, followed by an amended petition and amended accounting filed on July 7, 2007. The accounting reflects cash and securities valued at $92,141.00 as of December 31, 2006, plus the trust's interest in the residential real estate. In addition to the formal accounting, James has been provided with competent and professional appraisals of the trust assets, as noted above. James does not indicate that he has made any independent effort to obtain an alternate valuation of the trust assets.

The trustees are obligated to fulfill the five and five demand payments to Mary pursuant to power granted to her by decedent and are ordered to do so. James will retain the right to object to the calculation of these payments in the course of the pending accounting proceeding.

In the present case, there can be no question that the taxes paid by petitioner were necessary for the preservation of the property. On this basis, the trustees are directed to reimburse petitioner for one-half of the amounts paid by her in prior years for real estate taxes, as set forth in the claim filed with the court. Such payment may be reduced by any amount that was previously paid by the trustees to Mary in reimbursement of these expenditures.

As to the second real estate claim, factual questions remain as to whether the demolition work was necessary to preserve and protect the property, and whether James verbally agreed to the work, which Mary contends and James denies. If the court finds that the work was necessary to preserve and protect the property, or that James consented to the work in advance and agreed that the trust would pay one-half of the cost, as petitioner claims in her Notice of Claim and Affidavit attached as Exhibit C to her petition, then the trust will be charged. The parties must be given the opportunity to introduce evidence on these issues, even as the court notes that the party refusing to share in these expenses is the co-trustee of a trust which was created for the primary benefit of petitioner. Accordingly, this matter will appear on the court's calendar on July 30, 2008 at 10:00 a.m. for a conference at which time a discovery order, if necessary, will be entered and a hearing date scheduled.

Second, he argues that the only asset remaining in the trust is the trust's interest in the real property, the equity in which has been diminished by the recent home equity mortgage. If the equity is further depleted, there will be no funds with which to make future distributions to Mary. However, James' agreement in the 2007 stipulation to reimburse Mary for the cost of home health aides was "so ordered" and he has not taken any affirmative steps to be relieved of the terms thereof, and unless and until he successfully moves to modify or vacate the terms of the stipulation, it remains an order of this court.

More importantly, pursuant to the stipulation signed in January 2008, James agreed to assist in the application to obtain a reverse mortgage, which application was to have been filed prior to January 19, 2008. James is directed to assist Mary in applying for a reverse mortgage by executing any documents presented to him by Mary's attorney and returning them completed and signed within ten days of receipt.

Petitioner's request for costs and fees is denied without prejudice to renew.

The court grants those portions of the petition which ask that James be ordered to pay Mary's claims pursuant to her five and five demand, that James reimburse Mary for the trust's proportionate share of the real estate taxes, and that James be ordered to assist Mary in obtaining a reverse mortgage. The request for relief which concerns reimbursement of expenditures incurred in connection with the removal and demolition of a room in the residence and repayment for cost of the home health aides will be held in abeyance pending the conference scheduled for July 30, 2008.

James has averred that as of March 25, 2008, all of the liquid assets of the trust have been depleted, leaving the tenancy in common as the sole trust asset. James has offered no [*6]explanation as to why the liquid assets have been so totally depleted as to render the trustees incapable of making payments pursuant to the five and five demand, particularly in view of the trust's receipt in January 2008 of $148,000, which represents one-half of the proceeds of the home equity loan. The court will appreciate counsel's explanation at the conference to be held on July 30, 2008 at 10:00 a.m..

This decision constitutes the order of the court and no additional order shall be submitted. Dated: June 30, 2008

JOHN B. RIORDAN

Judge of the

Surrogate's Court