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The revocable trust and the pour-over Will have been in use for generations as part of certain clients' estate plans. Both the Will and the trust must be drawn carefully to provide that the documents are properly integrated since each document stands on its own merits. Today, the "selling" of revocable trusts to the general public has created significant legal and ethical issues including the use of documents which do not conform with New York Law and the use of written promotional materials which demean certain lawyers and the Courts.

The public is led to believe that an "academy" has granted membership to the promoter based upon the merit of the lawyer, rather than the payment of an initial franchise fee and continuing fees to the "prestigious academy" as documents are prepared and signed. Some revocable trust seminar written materials intentionally, or negligently, simply misinform the public. Recently, these form product documents have received judicial scrutiny in Matter of Pozarny 177 Misc 2d 752, 677 NYS2d 714.(1998)

Generally, there are a number of drafting traps to be avoided in the creation of revocable trusts, since the attorney may incorrectly assume that the Estates Powers and Trusts Law (EPTL) applicable to Wills is applicable with equal force to revocable trusts. This assumption is easy to make, particularly in light of the 1997 legislative changes for the creation of self-trusteed trusts which legislation was intended to allow a client, as the sole Trustee, to use the revocable trust as the dispositive instrument of the client's property at death. Indeed, the attorney must draft revocable trust provisions with great care and clarity. For example, if the trust provides that upon the death of the Grantor, the trust corpus is to be paid to the Grantor's children, A, B and C, what happens if A predeceases the Grantor and leaves issue surviving the Grantor? Can you assume that EPTL 3-3.3, which provides in a Will that A's issue succeed to A's interest, will apply? No. Arguably, A has a vested remainder interest, subject to divestment by the Grantor, and upon the death of the Grantor, A's share will pass to his/her estate. What has been provided in the trust?

Or, suppose that the Grantor's pour-over Will provides for cash legacies and a devise of real estate, but there are insufficient assets in the administrable estate to satisfy such legacies and devise. What does the trust provide for the payment of such legacies and devise? Who is going to explain to the legatees and devisee that the trust remainder persons have no interest in reducing their share of the trust corpus to satisfy such estate obligations?

With respect to the tax apportionment clause, EPTL 2-1.13 provides that the executor of the estate may obtain from the Trustee of the revocable trust the proportionate share of estate tax attributable to the amount of trust property included in the gross estate for tax purposes. Is that intended? What if the Will provides that all of the estate taxes are to be paid from the residuary administrable estate? Such a direction is valid only if the Will tax clause specifically refers to EPTL 2-1.13 in exempting the trust from contribution. What if there are annuities, jointly held property or retirement benefits which pass outside of the Will? Will the legacies provided in the Will abate because the residue is insufficient for the payment of the estate tax? From where should such taxes be paid? The trust corpus and not the residue of the estate. But, if the estate taxes are a general administrative charge against the trust corpus, will not that adversely impact the marital deduction provisions in the trust?

Or, can you assume that alternate valuation for federal estate tax purposes will be available to a revocable trust which continues for a trust beneficiary upon the death of the Grantor? If, in fact, a new trust is created for the beneficiary or separate beneficiaries under the terms of the trust, then alternate valuation is allowed, but the mere continuation of the trust for a new beneficiary will not allow alternate valuation for federal estate tax purposes. See Rev Rul 73-97 re former and Rev Rul 57-495 re latter. For combining trust income into the estate's fiduciary fiscal income tax year, see election under IRC 645.

The case of Matter of Pozarny points up disturbing legal issues involved with packaged trust product forms. Surrogate Joseph S. Mattina in a probate and construction proceeding comments extensively on the dangers in the use of trust preprinted forms obtained from an "out of state estate planning institute" franchise where the "drafting" appears no more than a piecing together of various sections from the forms, "often in a seeming feckless, haphazard manner". He refers to the pour-over Will and trust agreement before him as the "most egregious example of maladroit drafting this Court has encountered".

All parties to the proceeding urged the Court to allow the testimony of the attorney-draftsman as extrinsic evidence to glean the decedent's intention. If the trust was wholely invalid, its assets would pass by intestacy, as would the assets from the estate. The Court refused to allow testimony from the attorney draftsman, stating that such testimony would be of little use due to the draftsman's "imperfect memory, concern for his professional reputation or his fear of legal action."

Judge Mattina with some reservations upheld the trust as an independent entity to which most of the decedent's property ($1 million) had been transferred prior to death, but the Court did not allow an attempt, contrary to New York law, to incorporate by reference the trust agreement provisions into the Will if the pour over provisions failed. Further, the Court determined that since the trust amendment violated the procedural requirements of EPTL 3-3.7 relating to the acknowledgement of any amendment, the trust was not a valid pour over receptacle of the residue of the estate ($60,000) which passed by intestacy. Judge Mattina stated that "because neither the signature page, nor the acknowledgment page is bound or securely fastened to the other (trust) pages in the loose-leaf notebook, we cannot be sure which pages constitute the trust as executed?", thereby casting doubt on whether any loose-leaf trust document would be a valid pour-over receptacle of a residuary estate under the testator's pour-over Will.

In his closing remarks Judge Mattina states, "This decedent would have been better served with a simple Will."

The trust seminar written materials misstate the law, demean lawyers and the Courts and are designed to create fear in the attendees. The materials refer to the "probate process" as an "evil" which must be avoided. Some of the statements are set forth below: (You decide if they are ethical or true.)

1. Once your Will enters the probate process, your estate is no longer controlled by your family.
2. Because a Will guarantees that your estate will go through probate, it is a very poor estate-planning device.
3. If one of the owners is mentally disabled everything will have to wait until the Probate Court takes control.
4. The probate process is a long complicated and bureaucratic nightmare for most families.
5. The Court will often require formal written appraisals. Once all the debts and claims have been submitted and approved, they are presented to the Court for approval to pay them from the assets of the estate.
6. Only after all the bills are paid will the Probate Court distribute the estate to the beneficiaries.
7. Despite what probate lawyers say, probate is very expensive.
8. Information is often compiled and sold to those who use the information to sell products and services to vulnerable surviving family members. Your competitors will have a treasure trove of confidential business information at their fingertips in the probate file.
9. Once your estate enters the probate process, it is trapped in the system until the judge releases it.
10. The process takes so long, it can be a constant reminder of the loss of a loved one and can also foster arguments among family members. It is common to see family members taking out their frustration about the system on one another.

In conclusion, draft your client's documents with care, being aware of the legal and administrative consequences of the provisions in the documents and their relationship to each other. Prepare a detailed flow chart of assets so that the client will understand how the assets of the trust or the estate will pass. Make sure the documents are appropriate for your client's needs based upon your independent professional judgment.

The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.

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