In the News || Legal News

RECENT DEVELOPMENTS IN ESTATE PLANNING

by Bruce C. Johnson

1. "Transfer on Death" securities accounts will soon be a reality in New York, thanks to new legislation that becomes effective January 1, 2006. It has long been possible to register bank accounts in a “pay-on-death” or POD form, so that upon the account owner’s death, the balance in the account will be payable by operation of law to the named beneficiary and not pass as part of the deceased owner’s probate or intestate estate. Now, beginning in January, brokers and stock transfer agents will be permitted (though not required) to offer customers the option of registering stocks, bonds and other securities in the same way. New Part 13-4 of the Estates, Powers and Trusts Law (“EPTL”) makes the new registrations effective with respect to accounts of decedent’s dying on or after January 1, 2007 (one year after the effective date of the statute).

Registration in this new beneficiary form may be shown by the words “transfer on death” or the abbreviation “TOD” or by the words “pay on death” or the abbreviation “POD” after the name of the registered owner and before the name of the beneficiary. Such a registration (unlike a joint account) can be freely revoked at any time by the owner or by a specific reference to the account in the owner’s last will and testament. New EPTL § 13-4.7 provides that on the death of a sole owner or the last to die of all multiple owners, the ownership of securities registered in beneficiary form passes to the beneficiary or beneficiaries who survive all owners. If no beneficiary survives all the owners, the securities belong to estate of the deceased sole owner or the estate of the last to die of all multiple owners. A registering entity, by accepting a TOD registration, agrees to transfer ownership in accordance with this statute, and it is indemnified from any liability for doing so if it relies in good faith on information contained in the registration and supplied by the surviving beneficiary or the executor or administrator of the deceased owner.

2. Attorney-Fiduciary Disclosure. A person making a will can name any qualified person as an executor. The executor need not be an attorney. In order to be sure that attorneys did not press their clients improperly to name them as executors, the New York legislature ten years ago adopted a rule that required that testators be reminded that they are not required to appoint an attorney as their executor; that in general anyone (including an attorney) who serves as an executor is entitled to statutory commissions; and that if an attorney-executor also performs legal services for the estate, the attorney is entitled in addition to receive just and reasonable compensation for that legal work. A testator who names the attorney-drafter of his will as executor (or successor executor) was required by the 1995 law to sign a written acknowledgment that he had received this reminder, and the acknowledgment had to be filed with the court when the will was offered for probate. Surrogate’s Court Procedure Act (“SCPA”) § 2307-a. Failure to obtain and later file such a written acknowledgment had the consequence of limiting the attorney-executor to one-half of the statutory executor’s commission.

Late in 2004, an amendment to this statute was adopted so that the written acknowledgment must now contain a statement that the testator was told that the failure to obtain the acknowledgment would have the effect of limiting the executor commissions. The amendment also makes clear that the written acknowledgment must be a separate writing, separately signed, and not merely a clause contained in the will (although the separate acknowledgment may be attached to the will). SCPA § 2307-a(2) and (3)(a)(iii).

The point of this statute is not to dissuade people from naming attorneys to be their executors. It is only to ensure that testators understand that they are also free to name someone who is not an attorney, and if they do decide to entrust an attorney with this important job, the attorney will be entitled not only to statutory executor commissions but also to legal fees for any legal work performed for the estate, all of which will be paid out of the estate.

3 . Termination of an uneconomically small trust. Also in 2004, the EPTL was amended to provide that any trustee or beneficiary of a trust established by lifetime agreement or by will may request the Surrogate’s Court to terminate the trust when the expense of administering the trust is uneconomical. If the court finds that continuation of the trust is economically impracticable, that the express terms of the trust instrument or will do not prohibit such early termination, and that terminating the trust would not defeat the specified purpose of the trust and would be in the best interests of the beneficiaries, the court may terminate the trust and direct distribution of the remaining trust property to and among all the persons interested in income and principal of the trust. EPTL § 7-1.19. The new statute does not apply to any wholly charitable trust or to any trust if early termination or the possibility of early termination would reduce or eliminate any charitable tax deduction otherwise available to any person. The change in the law codifies certain court cases which had recognized the power of a court to order such early termination and overrules other cases which had held that a trust can never be terminated prior to the time or event specified by the creator of the trust.

If you have any questions about these developments, please feel free to call Bruce C. Johnson at 212-981-2317, or send email to bjohnson@sillerwilk.com.