Newman v. Dore
275 N.Y. 371, 9 N.E.2d 966 (1937)

  • Straus had a will that created a testamentary trust for his wife that would contain one-third of the property he owned at death.
    • The provision gave the wife the income from the trust, but not the principle of the trust.
  • Strauss then executed trust agreements that made an inter vivos gift of all of his property to other trusts.
    • After he did this, Strauss effectively owned nothing, so therefore his wife would inherit nothing.
    • Strauss undoubtedly did this so that his $$$ would pass to other beneficiaries and not his wife.
      • Under New York State law, no matter what Strauss said in his will, his surviving spouse had a right to ignore the will and instead elect to take a straight one-third of the augmented estate.
        • The augmented estate includes everything in the will, plus everything that transfers through non-probate means (trusts, insurance, 401k, etc.)
  • Three days later Strauss died.
  • Strauss’ wife challenged the validity of the transfer of all his estate to trusts.
    • Strauss’ wife argued that Strauss’ actions were contrary to the intent of New York inheritance laws.
  • The Trial Court found that the inter vivos gift to the trust was not valid.
  • The New York Supreme Court affirmed.
    • The New York Supreme Court found that the law does not restrict property transfers while the person is alive, so, if the property transfer was valid, then Strauss died with no estate and the wife gets one-third of nothing.
    • However, if the transfer of property was only illusory and Strauss still retained the property in some form, then the transfer is not valid and the property is still part of the estate.
    • The New York Supreme Court found that the transfer was illusory.
      • Strauss retained not only the income for life and the power to revoke the trust, but also the right to control the trustees.
      • Basically if you transfer property to a trust but reserve the power to revoke and modify the trust, and also the power to control the trustee in the administration of the trust, then the trust remains part of your augmented estate and can be taken as an elective share by the surviving spouse.
  • Basically this case said that the surviving spouse can’t get a trust invalidated because the decedent was trying to diminish the spouse’s elective share. However, the surviving spouse can get a trust invalidated because the wealth wasn’t really transferred to the trust, it was just a sham.
  • After this case occurred, New York changed its laws to include absolute gifts in the augmented estate that a surviving spouse a right to elect against.
    • Different States calculate elective share differently.
      • For example, in New York, you can choose either $50k or one-third of the augmented estate.
      • The old UPC gives one-third of the augmented estate.
      • The new UPC looks at the length of the marriage and gives a growing % for each year.
      • The equitable model says that the spouse would get what they would get in a divorce.