Alexander Hamilton, Trusts and Estates Attorney, Part 3

“What are the rights of the individuals composing a society and living under the protection of the government when a revolution occurs, a dismemberment takes place, and when new governments are formed and new relations between the government and the people are established?”  This was the pressing question asked by the U.S. Supreme Court in 1830 as it considered a case arising from the Last Will and Testament of Robert Randall containing testamentary trust for the establishment of Sailor’s Snug Harbor that Alexander Hamilton had drafted.

New York has always been known as the city of immigrants.  It was so when Alexander Hamilton arrived in New York, then known as the Province of New York and a British proprietary colony. Alexander Hamilton’s role in the Revolutionary War and in the founding of the United States is now well-known.  Less well-known is the complex history of New York from the time of the Declaration of Independence until the British retaking of the city in September of 1776, and the occupation of New York by the British until the retaking of the city by George Washington’s Continental Army on November 25, 1783.  During those tumultuous times, loyalists and revolutionaries considered themselves citizens of New York.  But who was a citizen and who was an alien?  Who had the right to inherit property?

Revolution in New York had begun before the Declaration of Independence.  On May 22, 1775, a group of local revolutionary representatives calling themselves the New York Provincial Congress had declared themselves the government of New York.  But New York was also home to Loyalists, colonists born in New York who remained loyal to the British Crown.  New York was the only colony not to vote for independence on July 4, 1776 and only endorsed the Declaration of Independence five days later.  About a third of the population of New York considered themselves Loyalists.  One of them was Bishop Charles Inglis.  From 1773 until the British defeat in 1783, Charles Inglis had been the rector of Trinity Church.  He resigned his post in 1783 and, like many Loyalists, emigrated to Nova Scotia where in 1788 he founded King’s College in Windsor, Nova Scotia.  Charles Inglis never returned to New York.  He had a son, John Inglis, who was born in New York in 1776 but who emigrated to Nova Scotia with his father.  John Inglis was ordained deacon by his father in 1801 and  became Rector of St, Paul’s in Halifax, Nova Scotia in 1816.  In 1826, John Inglis became the third Bishop of Nova Scotia.  Thereafter, he began a legal challenge to reclaim his rights to Robert Randall’s estate.

In the record of the U.S. Supreme Court case of Inglis v. Trustees of Sailor’s Snug Harbor (28 U.S. 99 (1830)),  John Inglis stated an uncontroverted claim to be related to Robert Richard Randall through Margaret Inglis, his mother, who was a descendant of John Crooke, the common ancestor of Robert Richard Randall, Catherine Brewerton, and Paul R. Randall.  But was kinship sufficient to claim an inheritance under Randall’s Will?  John Inglis had been born in New York before the Declaration of Independence, and he had lived in New York prior to the British re-occupation in September 1776.  As a child, he had emigrated with his father to Nova Scotia, his mother having died while the family lived in New York.  Did his birth on New York soil alone establish his right to inherit under Robert Randall’s Will and nullify the Sailor’s Snug Harbor Trust?

In his opinion, Justice William Johnson, who had been appointed to the Court by Thomas Jefferson, held that “(A) person born in New York before 4 July, 1776, and who remained an infant with his father in the City of New York during the period it was occupied by the British troops, his father being a loyalist and having adhered to the British government and left New York with the British troops, taking his son with him, who never returned to the United States, but afterwards became a bishop of the Episcopal Church in Nova Scotia; such a person was born a British subject, and continued an alien, and is disabled from taking land by inheritance in the State of New York.” This property and inheritance holding would be used to control both immigration and property ownership throughout the 19th century in New York.  Currently, New York’s SCPA § 2218 provides a procedure for aliens to inherit money or property located in New York.

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Alexander Hamilton, Trusts and Estates Attorney: Part 2

In June 1801, Hamilton was summoned to the deathbed of Robert Richard Randall who resided in a mansion and farm called Minto.  Minto Farm, located at Broadway between Eighth and Tenth Street in what is now Greenwich Village, sat on 21 acres with a mansion and other buildings.  Hamilton had once owned part of the property in partnership with John Jay and Isaac Roosevelt before selling the parcel to Baron Poellitz in 1787. In 1790 Robert Randall had purchased the farm and mansion formerly owned by the British Andrew Eliot, Collector of the Port, from Anne Stuart, baronne  von Poellnitz, the wife of Frederick Charles Hans Bruno, baron von Poellnitz.  Hamilton had also been involved in the sale and purchase of the property by Randall because he managed the Poellnitz’s affairs in the United States.

Hamilton was counsel to Randall’s sister Catharine Brewerton, and it is likely through that relation that he was asked by Robert to draft his Will.   In addition, Randall knew that Hamilton shared his philanthropic vision for the support of aging sailors.   George Washington, Hamilton, and Randall were all members of the very prestigious Marine Society.  Hamilton, John Marshall (who would become Chief Justice of the U.S. Supreme Court and who would play a part later in this story), and Leonard Lispenard (a wealthy merchant and large landowner of what is now TriBeCa, and commemorated by street names for both his first and last names) all served as presidents of the Marine Society that had been founded by Robert’s father, Captain Thomas Randall.

Captain Thomas Randall had made his fortune as a privateer (or buccaneer), a private person authorized by a government to attack and plunder enemy ships during wartime.  Thomas Randall had been a part owner of “La Jeune Babe” from 1773-1776 with Stephen Girard, who personally saved the U.S. Government from financial collapse during the War of 1812 and one of the wealthiest people at the time. Thomas Randall died in 1797 after a long maritime, governmental (he was Vice-Consul to China), and philanthropic career.  He had been the founder of the Marine Society in New York for the relief of sailors and their families.  Upon his death, his fortune was distributed in large part to his three children:  Paul R. Randall, Catharine Brewerton, and Robert Richard Randall.

It came as no surprise to Hamilton then that Robert Randall chose to leave his fortune in trust for the purpose of maintaining and supporting aging sailors.  But what Hamilton did next was pure genius:  he drafted a perpetual testamentary charitable trust that would be made viable by an act of the state legislature, thereby creating a road map for the legislature to transfer property for charitable purposes without the use of confiscation or eminent domain.  In addition, this Will provision established the private right of an individual to transfer property to a charitable corporation.  The charity would be created for the benevolent purpose of supporting fifty or more aging sailors from the proceeds of the rents from the residuary estate.   Here is the genius clause in its entirety:

“Sixthly.  As to and concerning all the rest, residue, and remainder of my estate, both real and personal, I give, devise, and bequeath the same unto the Chancellor of the State of New- York, the Mayor and Recorder of the city of New- York, the President of the Chamber of Commerce in the city of New- York, the President and Vice President of the Marine Society of the city of New-York, the senior Minister of the Episcopal Church in the said city, and the senior Minister of the Presbyterian Church in the said city ; to have and to hold, all and singular the said rest, residue, and remainder of my said real and personal estate, unto them, the said Chancellor of the State of New- York, Mayor of the city of New- York, the Recorder of the city of New-York, the President of the Chamber of Commerce, President and Vice President of the Marine Society, senior Minister of the Episcopal Church, and senior Minister of the Presbyterian Church in the said city, for the time being, and their respective successors in the said offices, forever, to, for, and upon the uses, trusts, intents, and purposes, and subject to the direction and appointments hereinafter mentioned, and declared concerning the same ; that is to say, out of the rents, issues and profits of the said rest, residue, and remainder of my said real and personal estate, to erect and build upon some eligible part of the land upon which I now reside, an Asylum, or Marine Hospital, to be called ” The Sailors’ Snug Harbor,” for the purpose of maintaining and supporting aged, decrepit, and worn-out sailors, as soon as they, my said charity Trustees, or a majority of them, shall judge the proceeds of the said estate will support fifty of the said sailors, and upwards. And I do hereby direct, that the income of the said real and personal estate, given as aforesaid to my said charity Trustees, shall forever hereafter be used and applied for supporting the Asylum or Marine Hospital hereby directed to be built, and for maintaining sailors of the above description therein, in such manner as the said Trustees, or a majority of them, may, from time to time, or their successors in office may, from time to time, direct. And it is my intention, that the institution hereby directed and created, should be perpetual, and that the above mentioned officers for the time being, and their successors, should forever continue and be the governors thereof, and have the superintendence of the same : and it is my will and desire, that if it cannot legally be done, according to my above intention, by them, without an act of the Legislature, it is my will and desire that they will, as soon as possible, apply for an act of the Legislature to incorporate them for the purposes above specified. And I do further declare it to be (my) will and intention, that the said rest, residue, and remainder of my real and personal estate should be, at all events, applied for the uses and purposes above set forth ; and that it is my desire, all courts of law and equity will so construe this, my said Will, as to have the said estate appropriated to the above uses, and that the same should, in no case, for want of legal form or otherwise, be so construed, as that my relations, or any other persons, should heir, possess, or enjoy my property, except in the manner and for the uses herein above specified. And, lastly, I do nominate and appoint the Chancellor of the State of New- York for the time being, at the time of my decease, the Mayor of the city of New York for the time being, the Recorder of the city of New- York for the time being, the President of the Chamber of Commerce for the time being, the President and Vice President of the Marine Society of the city of New-York for the time being, the senior Minister of the Episcopal Church in the city of New- York, and the senior Minister of the Presbyterian Church in the said city, for the time being, and their successors in office after them, to be the executors of this my last Will and Testament.”

Within five years after the death of Robert Randall, the New York legislature, on the application of the trustees who were also the executors of the Will, passed a law that constituted the persons holding the offices named in the Will and their successors as a corporation by the name of “The Trustees of the Sailor’s Snug Harbor” so that they could execute the trust in the Will.

Of course, this novel clause would not go without legal challenge, one that would reach the U.S. Supreme Court in the case of Inglis v. Trustees of Sailor’s Snug Harbor, 28 U.S. 99 (1830).  That case and its aftermath will be the subject of Part Three of this story.  Stay tuned!

#AlexanderHamilton #Hamilton #SailorsSnugHarbor

What Constitutes Delivery of a Gift?

We all understand what delivery of a gift means, or so we think.    After all, we all receive gifts and these are delivered by the donor, by a mail carrier, or by a delivery service.  When the item arrives, it has been delivered.  But at law, the concept of the “delivery” of a gift is much more complicated.

When a person makes a gift to another during the donor’s lifetime, this is called an inter vivos gift.   At times, the person making the gift wishes to retain possession of the gift, all the while “gifting” the item in question to another person.  In such a situation, when is the item delivered?  To determine the answer, we are going to look at the inter vivos “delivery” of a significant artwork:  Gustav Klimt’s  “Schloss Kammer am Attersee II,” which sold at auction in 1997 for $23,590,177.

In the case of Gruen v. Gruen, 68 N.Y.2d 48, 505 N.Y.S.2d 849, 496 N.E.2d 869 (1986), Victor Gruen was a prominent architect of Austrian origin with offices in New York and Los Angeles.  He purchased “Schloss Kammer am Attersee II” by noted Austrian artist Gustav Klimt in 1959.   Two important events occurred in Victor’s life in 1963:  he remarried a woman named Kemija, the defendant in this case, and his son Michael by a previous marriage, the plaintiff, turned 21.   Upon his son’s achieving majority, Victor gifted him with the painting, a gift that Victor memorialized in two letters signed by him and which were sent to his son Michael.  The painting remained in Victor’s possession for the remainder of his life, except for those times when it was loaned out for exhibition purposes.

For the purposes of an inter vivos gift, three elements must be met.  The first element is “delivery.”  Delivery can be accomplished by a writing or “instrument” to the donee.  It is the delivery of the written instrument from the donor to the donee that fulfills this first requirement.  In the case of Victor Gruen, he delivered the letters not only to his son but copies were also sent to his lawyer and his accountant.

This also goes to show the second element for an inter vivos gift:  donative intent.  The donor must intend to make a transfer of present ownership to the donee.  Merely intending to give something to someone in the future is not sufficient.  The transfer of ownership with an inter vivos gift is immediate.   What can be postponed, however, is the right of enjoyment.  The donor can continue to enjoy the tangible asset until s/he dies, so long as s/he intends to transfer a present ownership right to the donee.  In effect, the donor grants himself a life estate in the tangible asset.

The third element for the completed transfer of an inter vivos gift is acceptance by the donee.  The legal presumption is that, absent a renunciation, a gift is deemed accepted if the gift is beneficial to the donee.   Since Michael Gruen never renounced or repudiated the gift of the painting, either verbally or through his actions, the gift was deemed accepted.  Even the fact that he did not declare the painting in financial affidavits that he submitted as part of his divorce action in 1973 was insufficient to show that Michael had not accepted the painting.

Why is this legal concept of delivery so important?  It’s because inter vivos gifts are often part of an estate planning strategy to reduce the corpus of one’s estate by using gifts during one’s lifetime, or as a tax credit on his/her income taxes using charitable trusts.  But unless all three elements of “delivery” are met, the gift will fail and will be subject to taxes and penalties.

If you would like to discuss your own personal situation with me, or how an inter vivos gift can be tailored to your needs, you can get a free 30-minute consultation simply by filling out this contact form. I will get back to you promptly.

The Carvel Soft-Serve Empire: Avoiding an Estate Meltdown

When I was growing up, one of my favorite treats was a Carvel chocolate-dipped vanilla soft-serve cone.  And no birthday party was complete without a Carvel ice cream cake.  Tom Carvel was able to parlay my sweet tooth and millions of others into an empire at one time valued at $250 million.  When he died in 1990, he left behind his wife, the former Agnes Stewart, who had once loaned her future husband $15 to begin his ice cream business.  It proved to be a spectacular investment.

Tom Carvel owed his spectacular good fortune to a flat tire.  When Carvel began his business in Hartsdale, New York in 1929, he used a truck to bring his homemade confection to his clients.  One day, a tire blew in the proximity of a pottery store parking lot.   With his ice cream quickly melting, Carvel decided to start selling right from his parked truck.  Thus began the idea for soft serve ice cream, which Carvel refined over time.  He then worked out a deal with the pottery store so that he could sell his ice cream in the parking lot by running an electrical wire to keep his confection refrigerated.  His sales took off.

In 1936 Carvel purchased the pottery store and formed the Carvel Brand Corporation.  Carvel realized that there was money to be made from real estate as well.  Having established a successful business model, Carvel proceeded to map out a plan to franchise his business.  As part of his franchising model, Carvel purchased the properties upon which his franchisee’s store would be located, leasing back the space to the franchisee as part of the license agreement.  Thus the expansion of the Carvel brand also meant the expansion of the Carvel real estate holdings.

A known control freak, Carvel fought for years with the Federal Trade Commission against antitrust charges.  He required his franchisees to attend a three-month intensive training program, and the purchase of all supplies were to come directly from the Carvel Brand Corporation.  While this mentality may have served him well in business, the Will that he executed reflected his need to control from the grave.  The Will became the fodder for controversy and chaos.

His estate planning needs were relatively simple.  He and Agnes had no children, and his intent was to provide for Agnes during her lifetime and after her death the estate would go to charity.  There were several simple ways to accomplish this.  One way would have been to purchase a non-probate asset, such as an annuity, with Agnes as the beneficiary.  She could then have received structured payments immediately after his death.

By naming a disinterested executor (he would instead name seven interested executors), such as a bank or law firm, Carvel could have assured the continuity needed to administer his large postmortem estate without controversy.  And while there are fees associated with this option, it may be a wiser course of action than the litigation costs associated with squabbling executors and beneficiaries.

His Will would still have provided for the statutory spousal elective share.  Under New York Estates, Powers and Trusts Law (EPTL) § 5-1.1, a surviving spouse has the option of taking the the greater of $50,000 -or- 1/3 of the net estate.

The rest of the estate could have been given to charity through an irrevocable charitable remainder trust. §664 of the Internal Revenue Code of 1986 as amended provides for either the payment of a fixed amount through a charitable remainder annuity trust (§664(d)(1)(D)), or a percentage of trust principal through a charitable remainder unitrust (§664(d)(2)(D)).  Carvel would have received two immediate benefits.  He could have claimed a charitable income tax deduction.  And given his sizable real estate portfolio, the estate would not have had to pay immediate capital gains taxes as the trust disposed of the trust property in its portfolio.

What Tom Carvel left behind instead when he died of a heart attack in 1990 was a chaotic estate.  Nine years later, the estate was still in litigation.  A lawsuit filed by his niece Pamela Carvel against the Thomas and Agnes Carvel Foundation in 1999 before the Second Circuit Court of Appeals (188 F.3d 83 (2nd Cir. 1999)) revealed that Tom and Agnes had executed “mirror wills,” or two separate but identical Wills, each naming the Foundation as the beneficiary of their entire residuary estate.  At the same time, they executed a reciprocal agreement agreeing to refrain from changing their Wills or making certain transfers.

In addition to the Foundation, Carvel had created at least five other entities:  a Florida trust for his wife, a charitable remainder unitrust, two real estate holding companies, and the estate created by the mirror Will containing the statutory spousal election share and bequests to 83 different beneficiaries.

A year before his death, Tom Carvel sold his 700 stores to Middle East investors for a reported $80 million.  In the years following his death, a good portion of that sum was spent on litigation over the estate.  His widow Agnes, one of seven named original executors of his estate,  stepped down as executor and Foundation board member and fled to London in the wake of a call for a capacity hearing.  She died in London in 1998, having herself litigated against the estate to received the $600,000 quarterly payments stipulated in her husband’s Will.  A well thought-out estate plan could have avoided this strife and achieved Tom Carvel’s postmortem goals.

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If you would like to discuss your own personal situation with me, you can get a free 30-minute consultation simply by filling out this contact form.   I will get back to you promptly.