In probate and trust administration and litigation, all persons with an interest in the proceeding should be noticed and given an opportunity to participate. But what happens when persons affected by the proceedings cannot be located, ascertained, or have not even been born yet? New York Surrogate’s Court has been given the authority to allow for virtual representation of interested persons.
Virtual representation under New York law is the concept that those persons who are already parties to a proceeding can bind persons who are not present, so long as the interest of the person already present overlaps sufficiently with the interest of the persons not present. For example, assume a will leaves “all of my estate to my grandchildren, whenever born, in trust, with the trust to terminate 50 years after my death, to be distributed to my grandchildren, per stirpes.” There might be grandchildren who are minors, or not even born. Great grandchildren would also have an interest, even though not yet born. Virtual representation allows for the interests of those persons to be bound by persons who appear in the New York proceeding.
SCPA Section 315 (reproduced below) sets forth a two prong test for virtual representation under New York law. First, the person or class to be represented must fit under one of the categories of the statute. Second, that person or class of persons must actually be represented by the party in the action.
Who Are the Persons or Classes Who Can Be Represented Virtually?
Class of Contingent Beneficiaries
Some bequests are made to a class of persons upon the occurrence of a contingency, such as someone’s death. Any one the persons who would take upon the occurrence of the contingency might be able to virtually represent other members of the class who are unable to appear, because of minority status, unborn, or disabled.
Class of Relatives
For a future interest going to a beneficiary, typically an ancestor could represent the beneficiary. For example, in a standard marital trust established for a second marriage, the second spouse would receive income and discretionary principal from the marital trust, with the remainder at her death going to the only son of the deceased, per stirpes. That son can virtually represent his children.
Class of Unborn or Unascertained Persons
A living member of a class could represent members of another class, if no one in that other class is yet born or cannot be ascertained, so long as the interests of both classes are sufficiently aligned.
Individual Contingent Beneficiaries
A person who takes upon a contingency (if living at the time of the contingency) can virtually represent the alternate person who takes upon the occurrence of the contingency.
How is Virtual Representation Determined?
The person identified as the one providing the virtual representation in New York courts must actually protect the interests of the persons being virtually represented. The case of In re Estate of Lawrence, 106 Misc. 2d 19, 430 N.Y.S.2d 533 (Sur. Ct. 1980) gives an example of the reasoning courts will employ to determine whether the virtual representation is adequate under New York law (citations omitted):
The executor has raised a question with regard to the virtual representation of unborn remaindermen under SCPA 315 at the inception of this proceeding for a judicial settlement of its final account. The issue arises with respect to the residuary estate which is distributable to the petitioner as trustee of the two inter vivos trusts created by the testator for his son and daughter respectively. Under the terms of each trust, income is payable to the named child until he or she attains the age of 30 when the principal is paid over to him or her. Each child has a special power of appointment in the event of death before reaching 30. In default of the exercise of the power, the principal goes to the child’s issue but if none, which is the case at present in both trusts, to the child’s sibling (outright if the sibling’s own trust has terminated otherwise to be added to that trust) if living, but if not, to the issue of the sibling and in default of such issue to the decedent’s sister Bernice, if living, and if not, to her issue.
Petitioner contends first that the unborn issue of each child are represented by the other child as the presumptive remainderman. The virtual representation statute (SCPA 315, subd 2, par [a], cl [iii]) does provide that where a remainder is limited to unborn persons they need not be joined as parties “but if it appears that there is no certain or presumptive remainderman in being or ascertained, the court shall appoint a guardian ad litem to represent or protect the persons who eventually may become entitled to the interest.”
The interest of the presumptive remainderman who represents unborns may be a subsequent one under the plain meaning of the statute in contrast to the language in clause (ii) of this subdivision requiring the virtual representative to have a prior interest.
The difficulty with permitting these presumptive remaindermen to represent the unborns is the possible inadequacy of such representation. Each presumptive remainderman is the primary income beneficiary of a twin trust. Each has already received distributions of income and the account also shows undistributed income on hand. This court has permitted an income beneficiary to represent a remainderman where their economic interests were identical, i.e., where neither had any interest save the maximum protection of the principal. But those cases involved a secondary income beneficiary not primary beneficiaries who have an interest in the allocation of income to the undistributed income account and particularly not cases where income has been distributed to them. Thus the presumptive remaindermen may not virtually represent the unborns because their representation may be inadequate. (SCPA 315, subd 6.)
Petitioner then contends that the decedent’s sister Bernice may represent the unborns. She is not the presumptive remainderman and such representation seems to this court to violate the language and the purpose of the statute. The statute quite clearly provides for the appointment of a guardian ad litem if there is no presumptive remainderman. Here we have a presumptive remainderman whose role as virtual representative the court will not accept which is surely the equivalent of nonexistence for purposes of this statute. To allow a more remote remainder interest to serve as representative not only flouts the language of the statute but raises a question as to the adequacy of representation. Bernice has a remote interest in these trusts while the presumptive remaindermen are on the scene and the court must doubt the adequacy with which she would represent the unborns.
Virtual representation must applied with cautions since the finality of the decree is at risk. The best interests of the parties are not served by reading this statute loosely. A guardian ad litem must be appointed for the unborn remaindermen.
What Happens if Someone Not Appearing is Not Virtually Represented?
If the person who was going to virtually represent others does not adequately protect the interest of those others, or no one is identified to perform the virtual representation, the New York Surrogate’s Court must appoint a guardian ad litem. SCPA Section 403(2) provides:
By the court. A person under disability who does not appear by his guardian, committee or conservator pursuant to 402 shall except as otherwise expressly provided appear by a guardian ad litem appointed by the court on nomination or on its own initiative whenever such person is a necessary party or for other reason the court deems it necessary to appoint a guardian ad litem to protect the interests of such party.
SCPA Section 315. Joinder and Representation of Persons Interested in Estates
1. The provisions of this section shall apply in any proceeding in which all persons interested in the estate are required to be served with process. For the purposes of this section, the term “an interest in the estate” includes both interests in income and interests in principal.
2. Representation of class interests.
(a) Where an interest in the estate has been limited as follows, it shall not be necessary to serve process on any other person than as herein provided:
(i) In any contingency to the persons who shall compose a certain class upon the happening of a future event, the persons in being who would constitute the class if such event had happened immediately before the commencement of the proceeding.
(ii) To a person who is a party to the proceeding and the same interest has been further limited upon the happening of a future event to a class of persons described in terms of their relationship to such party, the party to the proceeding.
(iii) To unborn or unascertained persons, none of such persons, but if it appears that there is no person in being or ascertained, having the same interest, the court shall appoint a guardian ad litem to represent or protect the persons who eventually may become entitled to the interest.
(b) Where a party to the proceeding has a power of appointment it shall not be necessary to serve the potential appointees and if it is a general power of appointment it shall not be necessary to serve the takers in default of the exercise thereof.
3. Representation of contingent interests.
Where an interest in the estate has been limited to a person who is a party to the proceeding and the same interest has been further limited upon the happening of a future event to any other person it shall not be necessary to serve such other person.
4. Representation in probate proceeding. In a proceeding for probate of a testamentary instrument the interests of the respective persons specified in subdivisions 2(a)(ii) and 3 of this section shall be deemed to be the same interest, whether or not their respective interests are in income or in principal or in both, provided that they are beneficiaries of the same trust or fund, that they have a common interest in proving or disproving the instrument offered for probate and that the person who is a party under subdivision 2(a)(ii) or the person to whom the interest has been limited under subdivision 3 would not receive greater financial benefit if such instrument were denied probate (in the case where such beneficiaries have a common interest in proving such instrument) or admitted to probate, (in the case where such beneficiaries have a common interest in disproving such instrument).
5. Representation of persons under a disability. If the instrument expressly so provides, where a party to the proceeding has the same interest as a person under a disability, it shall not be necessary to serve the person under a disability.
6. The decree or order entered in any such proceeding shall be binding and conclusive on all persons upon whom service of process is not required.
7. In any proceeding in which service of process upon persons interested in the estate may be dispensed with pursuant to the provisions of this section or section twenty-two hundred ten , in addition to such other requirements as may be applicable to the petition in the particular proceeding, the petition shall (i) set forth in a form satisfactory to the court the information required by subdivision three of section three hundred four with respect to the persons interested in the estate upon whom service of process may be dispensed with, the nature of the interests of such persons and the basis upon which service of process may be dispensed with, and (ii) state whether the fiduciary or any other person has discretion to affect the present or future beneficial enjoyment of the estate and, if so, set forth the discretion possessed and, if exercised, the manner in which it has been exercised. Notwithstanding the foregoing provisions of this section and any provisions of the instrument to the contrary, if the court finds that the representation of a person’s interest is or may be inadequate it may require that he be served. The basis for such finding shall be set forth specifically in the order.
8. Nonjudicial settlements of accounts of fiduciaries. Unless the instrument expressly provides otherwise, an instrument settling an account, executed by all the persons upon whom service of process would be required in a proceeding for the judicial settlement of the account, shall be binding and conclusive on all persons upon whom service of process would not be required to the same extent as that instrument binds the persons who executed it.