Simplify Trust Gifts in Wills

In 1997, on the recommendation of the EPTL-SCPA Legislative Advisory Committee, the Legislature added EPTL 7-1.18, which provides that a lifetime trust is valid only to the extent of the assets successfully transferred to the trust during the lifetime of the settlor. L. 1997, c. 139, § 3. However, in the Fourth Report of the Advisory Committee, recommending the enactment of EPTL 7-1.18, there is nothing to indicate any intention to disturb the Bennett Commission's decision to permit a pour over to a trust under 3-3.7 even though no assets have been trans- ferred to the trust during the decedent's lifetime. Indeed, the same chapter of law that added 7-1.18 also added EPTL 7-1.17 (which sets forth new execution formalities required of a lifetime trust) and amended section 3-3.7 to specifically require that these new formalities of section 7-1.17 be met, but at the same time omitted any reference whatsoever to the funding requirements of section 7-1.18.

All of the above makes sense when it is recognized that the purpose of 7-1.18 is to make clear that assets are made subject to a life time trust only if they have been successfully transferred to the trust during the settlor's testator's life, whereas section

3-3.7 is concerned not with the existence of a lifetime trust but rather with the validity of a testamentary transfer of probate assets.

Nevertheless, given that EPTL 7-1.18 was added after EPTL 3-3.7 and that section 3-3.7 does not specifically reference the transfer requirements of section 7-1.18, some have raised a question with respect to the relationship of sections 3-3.7 and 7-1.18. It is, therefore, recommended that clarifying legislation be enacted. Specifically, it is proposed that section 3-3.7 be clarified by removing the phrase "regardless of the existence, size or character of the corpus", and inserting, in its place, the phrase "regardless of whether any assets have been trans- ferred to such insurance trust or other trust prior to the death of the testator or testatrix." II.Trust Formalities

A second, somewhat related, issue under section 3-3.7 was involved in the recent decision of Matter of D'Elia, 40 Misc.3d 355 (Surrogate's Court, Nassau County 2013).

In D'Elia, the testator's will left his residuary estate to a trust of which he was the grantor and his son was the trustee. The testator signed the trust at the same time he signed his will, but his son did not sign the trust until seven days later. The Surrogate held that the pour over failed because the trust had not been executed in compliance with section 7-1.17, stating:

"EPTL 3-3.7 permits a testator to make a pour-over bequest to a trust in a will provided that such trust instrument is executed in the manner provided for in 7- 1. 17, prior to or contemporaneously with the execution of the will, and such trust instrument is identified in such will. ... Here, the trust was signed by the decedent as settlor on March 22, 2011 contemporaneously with or prior to the execution of his purported will. The trustee, however, did not sign the trust agreement until March 29, 2011. Thus, the trust was not in existence at the time the will was signed."

The result in D'Elia, although correct under the letter of sections 3-3.7 and 7-1.17 as presently written, seems an unduly harsh frustration of the testator's intent, especially when it is seen that the testator, in simultaneously signing both the will and the trust instrument, had fully performed his own personal role in the required execution formal- ities.

Moreover, under section 3-3.7, both as originally enacted in 1965, as well as at present (i.e., as amended in 1997 to include the requirement of complying with section 7-1.17), if (as is often the case) the pour over trust is one in which the testator is both the grantor and the sole trustee, the trust instrument need not be signed by anybody other than the testator/grantor/trustee (although it must be notarized). Thus, if the grantor in D'Elia had been the sole trustee to begin with, the stat- utes would have been satisfied without his son ever having to sign the trust instrument as trustee**.

On the other hand, if, as in D'Elia, the testator chooses to name anoth- er person as trustee (or co-trustee) of the pour over trust, it is not unreasonable to require that such person also execute the trust instru- ment, at least prior to the testator's death when the pour over bequest becomes effective.

We therefore recommend that section 3-3.7 continue to require that in all cases the settlor execute the trust instrument prior to, or contem- poraneously with, the execution of the will, but that if a person other than the settlor is named as a trustee, such person must also execute the trust instrument at some point prior to the testator's death.

This measure, which would have no fiscal impact on the State, would take effect immediately and apply to all testamentary dispositions to a trus- tee occurring on or after such effective date.

2017-18 Legislative History: OCA 2017-35;

Assembly 6809 (M. of A. Stirpe, Weinstein) (PASSED in 2017; ordered to 3rd Rdg., Cal. 476 in 2018)

2016 LEGISLATIVE HISTORY:

OCA 2016-76

* Second Report of the Temporary Commission on Estates (1963)(" Because of the doubts which have been raised by decisions in other states as to whether an unfunded insurance trust is a non-testamentary act and wheth- er a trust with merely nominal assets meets the requirement that one of the elements of a valid trust is a trust res, the Uniform Act in many of the other statutes so provide and it is desirable that such doubts be removed by a specific provision that neither of such facts shall affect the validity of the pour-over P.312It is suggested that a statute validating `pour-overs' to intervivos trusts should...state that (a) such trust shall include a funded or unfunded life insurance trust although the testator has reserved any part or all of the right of ownership in the insurance contracts, and (b) that the existence, size or character of the corpus of the trust shall not affect its validity".)

** It can also be pointed out that if this had been a testamentary trust rather than a section 3-3.7 trust, only the testator's signature would be required.