In re the Estate of Kraetzer

119 Misc. 2d 436, 462 N.Y.S.2d 1009, 1983 N.Y. Misc. LEXIS 3531
CourtNew York Surrogate's Court
DecidedJune 2, 1983
StatusPublished
Cited by13 cases

This text of 119 Misc. 2d 436 (In re the Estate of Kraetzer) is published on Counsel Stack Legal Research, covering New York Surrogate's Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re the Estate of Kraetzer, 119 Misc. 2d 436, 462 N.Y.S.2d 1009, 1983 N.Y. Misc. LEXIS 3531 (N.Y. Super. Ct. 1983).

Opinion

OPINION OF THE COURT

Bernard M. Bloom, S.

This proceeding for settlement of a final trust accounting presents a question of construction occasioned by the bankruptcy of a charitable remainderman designated by the donee of a power of appointment.

The donor of the power, Adolph G. Kraetzer, died March 3, 1931 leaving a 1927 will which was probated in this court. His will provided that the net estate be divided into three portions and placed in trust, each part to furnish income to one of his three children. Upon the death of each child, the remainder interest in his or her trust was to be distributed “by valid and absolute disposition by will of such child” and in default of such exercise of the power, “as a part of the estate of such child in accordance with the statutes of descent and distribution of the State of New York.”

[437]*437One of the children thus benefited was Dr. Arthur F. Kraetzer. His will, which was duly admitted to probate in New York County following his death on March 2, 1940, directed that the trust fund established for him under his father’s will be placed in further trust to pay income to his wife, Beatrice MacDonald Kraetzer, and that upon her death, the corpus be equally divided between his niece, Caroline C. Vance, “to her own sole use, benefit or behoof, forever” and Knickerbocker Hospital, or its successor or successors, “to its sole use, benefit and behoof, absolutely and forever.”

Beatrice MacDonald Kraetzer died on April 10, 1976, at which time the charitable remainderman, by then known by the name Arthur C. Logan Memorial Hospital, was an operating hospital. Shortly thereafter, in October of the same year, Logan Memorial filed a voluntary petition under chapter 11 of the Bankruptcy Law (US Code, tit 11). The corporation was adjudicated a bankrupt on February 15, 1979, at which time it ceased its usual operations.

Ursula MacDonald, executrix of the estate of Beatrice MacDonald Kraetzer, contends that the remainder gift to the hospital lapsed under these circumstances and is properly payable to her testate as sole distributee in intestacy in accordance with the asserted testamentary intent both of Adolph G. Kraetzer and of Dr. Arthur F. Kraetzer. The Attorney-General of the State of New York, appearing in his capacity as statutory representative of charitable interests, agrees that the gift failed but argues for an application of the cy pres power to preserve the gift for a similar eleemosynary purpose. Lawrence Sarf, who serves as trustee in bankruptcy for the hospital, maintains that as Logan Memorial was a functioning voluntary hospital upon the termination of the preceding life income interest, the gift vested absolutely in it and is not subject to divestiture merely because the trustee failed to make immediate payment.

The intended remainderman, Knickerbocker Hospital, renamed Arthur C. Logan Memorial Hospital, though adjudicated a bankrupt, remains extant. However, the bare legal existence of a charitable corporation to which a testamentary disposition is made does not ensure entitle[438]*438ment to receipt of the gift in its favor; on the contrary, the cessation of its benevolent functions, whether or not accompanied by bankruptcy, has invariably been held to defeat its claim to the disposition notwithstanding continued corporate existence whether the winding down occurred before the death of the testator, in the case of an immediate outright gift (see, e.g., Matter of Walter, 150 Misc 512; Matter of Mills, 121 Misc 147), during an antecedent life income interest, in the case of a gift of the remainder (see Matter of Scott, 1 Misc 2d 206; Matter of Shelton, 87 NYS2d 853; Matter of Brundrett, 87 NYS2d 851; Matter of McNeile, NYLJ, Jan. 5, 1981, p 11, col 5; Matter of Lauterbach, NYLJ, July 11, 1980, p 7, col 3) or during the actual enjoyment of a gift of income in perpetuity (Matter of Bowne, 11 Misc 2d 597).

The trustee in bankruptcy seeks to distinguish this body of law on the ground that the institution herein was still performing its customary patient services at the time the gift became payable upon the death of the life income beneficiary. Had the testamentary trustee made prompt distribution, no question would have arisen as to the hospital’s qualification to receive the funds. Accordingly, he argues, the dilatoriness of the fiduciary should not be permitted to have the effect of causing the hospital’s indefeasibly vested gift to be diverted to another recipient.

This line of reasoning is wide of the mark. As a noncontingent gift the enjoyment of which was merely postponed to let in an intervening life income interest, the gift to Knickerbocker Hospital actually vested before it became payable — upon the death of Dr. Arthur Kraetzer, the donee of the power (Matter of Ablett, 3 NY2d 261; Matter of Leventhal, 27 Misc 2d 594; Matter of Bowne, supra; Matter of Tapper, 139 NYS2d 110). But that fact has no relevance to whether payment should now be directed to be made to the trustee in bankruptcy; as is evident from the line of authority mentioned above, termination of its benevolent services causes the loss of a charity’s right to receive an absolute disposition or continued income, as the case may be, despite the prior vesting of the bequest or devise. Charitable gifts by will, being for public purposes, are impressed with a public trust imposed by the charter of [439]*439each particular entity even if no express trust was created by the donor (Sherman v Richmond Hose Co., 230 NY 462; Matter of Scott, 1 Misc 2d 206, supra). Thus it is, for example, that upon the dissolution of a charitable membership corporation which holds a testamentary fund to furnish income to itself in perpetuity, the fund may be ordered paid under the cy pres power to another entity furthering similar benevolent purposes rather than distributed among the membership. (Sherman v Richmond Hose Co., supra; see, also, Matter of Wagner, 112 Misc 2d 302.)

The trustee in bankruptcy argues that even now the hospital is capable of using the bequest in accordance with the wishes of Dr. Kraetzer in that its obligations to its creditors were incurred in conjunction with its active operation as a voluntary hospital, particularly since patient care continued to be provided for nearly three years following the death of Dr. Kraetzer’s widow. As the gift was not limited to any specific purpose, but rather given in absolute terms, he maintains, payment of the hospital’s debts is a proper charitable object.

The same argument was, or could have been, advanced in virtually every other instance in which a particular charity was in bankruptcy at the time the gift would otherwise have been paid. Whatever its inherent merits, the courts have uniformly held that the intention of a testator in making a general gift to a charitable corporation was the furtherance of the charitable purpose for which the entity was formed as set forth in its charter. In the case of hospital corporations, such purpose is deemed to be the actual a^d continued provision of acute patient care services rather than the satisfaction of creditors’ claims (see Matter of Lauterbach, NYLJ, July 11, 1980, p 7, col 3, supra; Matter of McNeile, NYLJ, Jan. 5, 1981, p 11, col 5, supra; Matter of Walter, 150 Misc 512, supra; Matter of Ruttenau, 149 Misc 626; see, also, Matter of Cohen, 58 NYS2d 924). .

Free access — add to your briefcase to read the full text and ask questions with AI

Related

In re Lally
112 A.D.3d 1099 (Appellate Division of the Supreme Court of New York, 2013)
In re Edward John Noble Hospital of Gouverneur
39 Misc. 3d 279 (New York Supreme Court, 2013)
In re Trustco Bank
37 Misc. 3d 1045 (New York Surrogate's Court, 2012)
In Re Elizabeth J.K.L. Lucas Charitable Gift
261 P.3d 800 (Hawaii Intermediate Court of Appeals, 2011)
Georgia O'Keeffe Foundation (Museum) v. Fisk University
312 S.W.3d 1 (Court of Appeals of Tennessee, 2009)
Episcopal Charities of Albany, Inc. v. Albany Medical Center—South Clinical Campus
30 A.D.3d 802 (Appellate Division of the Supreme Court of New York, 2006)
In re the Estate of Othmer
12 Misc. 3d 414 (New York Supreme Court, 2006)
In re the Estate of Tobin
261 A.D.2d 627 (Appellate Division of the Supreme Court of New York, 1999)

Cite This Page — Counsel Stack

Bluebook (online)
119 Misc. 2d 436, 462 N.Y.S.2d 1009, 1983 N.Y. Misc. LEXIS 3531, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-the-estate-of-kraetzer-nysurct-1983.