Assembly Bill A9857

                                BILL NUMBER:A9857A

TITLE  OF BILL:   An act to amend the estates, powers and trusts law, in
relation to credit shelter formula bequests  after  federal  estate  tax
repeal  and  bequests of unused federal generation skipping transfer tax
exemption after repeal

PURPOSE:  Under the Internal Revenue Code now  in  effect,  the  Federal
estate tax is repealed for decedent's dying in 2010, only to be restored
in 2011 at higher rates and with lower exemptions. Most estate attorneys
expected  Congress to enact a new law prior to 2010 so as to prevent the
estate tax from expiring and did not anticipate  that  temporary  repeal
would occur. There is still a possibility that Congress may reinstate an
estate tax for 2010 retroactively.

Many  wills,  trusts  and  beneficiary forms prepared prior to 2010 were
based on formula dispositions in the case of married testators. The  aim
was  typically  to leave as much as possible on the first spouse's death
to a trust or to individuals other than the surviving spouse  (typically
issue  of  the decedent) without causing estate tax on the first spouses
death. This was commonly referred to  as  a  "credit  shelter  bequest",
since  the  amount  involved  ($3.5  million for decedent dying in 2009)
would be sheltered from estate tax on the  first  death  by  a  "unified
credit"  allowed  under  the  Internal  Revenue Code. The credit shelter
bequest is not subject to estate tax an the surviving spouse's death.

              

The credit shelter bequest is usually phrased in terms  of  the  maximum
amount  that  can pass free of Federal estate tax on the first death, or
in terms of like effect, The same results were  obtained  with  formulas
leaving  a  spouse  outright  or  in  a  form  qualifying  for a marital
deduction against the Federal estate tax, the minimum  amount  necessary
to  avoid  imposition of an estate tax on the first spouse's death. With
repeal of the estate tax, these formula clauses could be interpreted  to
leave  the  entire estate in a credit shelter disposition and nothing to
the spouse or in a form qualifying for a marital deduction. This conclu-
sion is reached since the entire estate and not just the  part  formerly
sheltered  by  statutory  credits  can  now  pass under a credit shelter
disposition without there being any estate tax.

The  Federal  generation  skipping  transfer  tax  is  also  temporarily
repealed  for transfers in 2010. Many wills and testamentary instruments
also left to grandchildren (or to trusts that would eventually  pass  to
grandchildren) maximum amounts allowable without imposition of a, Feder-
al  generation  skipping  transfer  tax. With repeal, this amount is now
unlimited, and may  pass  to  grandchildren  to  the  detriment  of  the
decedent's children.

The purposes of the bill, accordingly, are:

1.  To  preserve the form in which most testators expected their estates
to be divided prior to the unexpected repeal of the Federal estate tax;

2. To assure that a surviving spouse will not be disinherited  and  left
to  exercise  a right of election under Article 5 of the Estates, Powers
and Trusts Law;

3. To shelter assets in a credit shelter disposition for the time estate
tax may be reinstated;

4.  To  prevent unwarranted amounts from passing to grandchildren to the
detriment of children.

SUMMARY OF PROVISIONS:  The bill amends the Estates, Powers  and  Trusts
Law  to  provide  that  a  formula  in a will, trust or beneficiary form
executed or created prior to January  1,  2010  providing,  in  sum  and
substance,  for a bequest of an amount of property that can be sheltered
from Federal estate tax by reason of credits against such tax, shall  be
construed under the Internal Revenue Code of 1986 as in effect for dece-
dents  dying  on  December  31,  2009,  in the case of a decedent who is
survived by a spouse, and who dies during 2010 at a time when the Feder-
al estate tax is repealed. The Federal estate tax is not deemed repealed
if it is legally reinstated retroactively to the time of the  decedent's
death.

Similarly,  if  a  will,  trust  or  beneficiary designation executed or
created prior to January 1, 2010 contains a bequest  which  in  sum  and
substance  refers  to  the  decedent's unused exemption from the federal
generation skipping transfer tax, then such bequest shall  be  construed
under  the  Internal Revenue Code of 1986 in effect on December 31, 2009
with respect to generation skipping transfers on such date. This applies
in the case of a decedent who dies during 2010 at a time when the feder-
al generation skipping transfer tax is not in effect, Again, the federal
generation skipping transfer tax is considered to be in effect if legal-
ly reinstated retroactively to the date of decedent's death.

EXISTING LAW:  Existing Law following repeal of the Federal  estate  tax
and  generation skipping transfer tax is unclear. It is conceivable that
all of a decedent's property may be held by a  court  to  pass  under  a
credit shelter disposition to the detriment of a surviving spouse.

It  is also possible that a decedent's children may be deprived of prop-
erty all of which is held to pass under a bequest of a decedent's unused
exemption from the Federal generation skipping transfer tax.

JUSTIFICATION:  See discussion under proposed bill.

LEGISLATIVE HISTORY:  None

FISCAL IMPLICATIONS:  There are no fiscal  implications.  However  there
would  be additional New York estate tax if, in the absence of the bill,
courts require the entire estate to pass under a formula credit  shelter
disposition.

EFFECTIVE  DATE:    This act shall take effect immediately, and shall be
deemed to have been in full force and effect on  and  after  January  1,
2010.

                                BILL NUMBER:A9857B

TITLE  OF BILL:   An act to amend the estates, powers and trusts law, in
relation to certain formula clauses to be  construed  to  refer  to  the
federal  estate  and generation-skipping transfer tax laws applicable to
estates of decedents dying after December 31, 2009 and before January 1,
2011

PURPOSE OF BILL:  Under the Internal Revenue Code  now  in  effect,  the
Federal  estate tax is repealed for decedent's dying in 2010, only to be
restored in 2011 at higher rates and with lower exemptions. Most  estate
attorneys  expected  Congress  to enact a new law prior to 2010 so as to
prevent the estate tax from expiring and did not anticipate that  tempo-
rary  repeal would occur. There is still a possibility that Congress may
reinstate an estate tax for 2010 retroactively.

Many wills, trusts and beneficiary forms prepared  prior  to  2010  were
based  on formula dispositions in the case of married testators. The aim
was typically to leave as much as possible on the first  spouse's  death
to  a trust or to individuals other than the surviving spouse (typically
issue of the decedent) without causing estate tax on the first  spouse's
death.  This  was  commonly  referred  to as a "credit shelter bequest",
since the amount involved ($3.5 million  for  decedent  dying  in  2009)
would  be  sheltered  from  estate  tax on the first death by a "unified
credit" allowed under the Internal  Revenue  Code.  The  credit  shelter
bequest is not subject to estate tax at the surviving spouse's death.
              

The  credit  shelter  bequest is usually phrased in terms of the maximum
amount that can pass free of Federal estate tax on the first  death,  or
in  terms  of  like effect, The same results were obtained with formulas
leaving a spouse  outright  or  in  a  form  qualifying  for  a  marital
deduction  against  the Federal estate tax, the minimum amount necessary
to avoid imposition of an estate tax on the first spouse's  death.  With
repeal  of the estate tax, these formula clauses could be interpreted to
leave the entire estate in a credit shelter disposition and  nothing  to
the spouse or in a form qualifying for a marital deduction. This conclu-
sion  is  reached since the entire estate and not just the part formerly
sheltered by statutory credits can  now  pass  under  a  credit  shelter
disposition without there being any estate tax.

The   Federal  generation-skipping  transfer  tax  is  also  temporarily
repealed for transfers in 2010. Many wills and testamentary  instruments
also  left  to grandchildren (or to trusts that would eventually pass to
grandchildren) maximum  arnounts  allowable  without  imposition  of  a,
Federal  generation  skipping  transfer tax. With repeal, this amount is
now unlimited, and may pass to grandchildren to  the  detriment  of  the
decedent's children.

The purposes of the bill, accordingly, are:

1.  To  preserve the form in which most testators expected their estates
to be divided prior to the unexpected repeal of the Federal estate tax;

2. To assure that a surviving spouse will not be disinherited  and  left
to  exercise  a right of election under Article 5 of the Estates, Powers
and Trusts Law;

3. To shelter assets in a credit shelter disposition for the time estate
tax may be reinstated;

4.  To  prevent unwarranted amounts from passing to grandchildren to the
detriment of children.

SUMMARY OF PROVISIONS:   The bill, which  applies  to  assets  that  are
distributed  upon  the  death  of a decedent through a will or revocable
trust, amends the Estates, Powers and  Trusts  Law  to  provide  that  a
formula  in  a will, trust or beneficiary form executed or created prior
to January 1, 2010 providing, in sum and substance, for a bequest of  an
amount  of  property  that  can  be sheltered from Federal estate tax by
reason of credits against such tax, shall be construed under the  Inter-
nal  Revenue  Code  of 1986 as in effect for decedents dying on December
31, 2009, in the case of a decedent who is survived by a spouse, and who
dies during 2010 at a time when the Federal estate tax is repealed.  The
Federal estate tax is not deemed repealed if it  is  legally  reinstated
retroactively to the time of the decedent's death. This legislation does
not apply to irrevocable trusts.

Similarly,  if  a  will,  trust  or  beneficiary designation executed or
created prior to January 1, 2010 contains a bequest  which  in  sum  and
substance  refers  to  the  decedent's unused exemption from the federal
generation skipping transfer tax, then such bequest shall  be  construed
under  the  Internal Revenue Code of 1986 in effect on December 31, 2009
with respect to generation skipping transfers on such date. This applies
in the case of a decedent who dies during 2010 at a time when the feder-
al generation skipping transfer tax is not in effect, Again, the federal
generation skipping transfer tax is considered to be in effect if legal-
ly reinstated retroactively to the date of decedent's death.

This legislation also includes a provision exempting any will  or  trust
that  already  has  provisions  drafted by the testator determining what
should happen with formula clause provisions in the event that estate or
generation-skipping transfer tax is repealed.

Finally, this legislation provides that any affected beneficiary or  the
executor  or  trustee  may  bring  a  proceeding  within  a  year of the
decedent's date of death to determine whether the decedent intended that
that the formula clause be construed with  respect  to  the  law  as  it
existed  on  the  decedent's  date of death (rather than on December 31,
2009). In that regard, the  legislation  also  provides  that  extrinsic
evidence may be admitted to establish the decedent's intent.

EXISTING  LAW:   Existing Law following repeal of the Federal estate tax
and generation skipping transfer tax is unclear. It is conceivable  that
all  of  a  decedent's  property  may be held by a court to pass under a
credit shelter disposition to the detriment of a surviving spouse.

It is also possible that a decedent's children may be deprived of  prop-
erty all of which is held to pass under a bequest of a decedent's unused
exemption from the Federal generation skipping transfer tax.

JUSTIFICATION:    Without this legislation, due to the repeal of federal
estate and generation skipping tax, when there is a formula clause in  a
will,  the  intent  of  the testator cannot be carried out or determined
through a construction proceeding. The only remedy available is a costly
right of election proceeding that may very well be  contested  by  other
beneficiaries. This legislation will therefore avoid needless litigation
to  the benefit of beneficiaries of the decedent and the court system as
well.

LEGISLATIVE HISTORY: New bill, 2010.

FISCAL IMPLICATIONS FOR STATE AND  LOCAL  GOVERNMENTS:    There  are  no
fiscal  implications.  However there would be additional New York estate
tax if, in the absence of the bill, courts require the entire estate  to
pass under a formula credit shelter disposition.

EFFECTIVE  DATE:    This act shall take effect immediately, and shall be
deemed to have been in full force and effect on  and  after  January  1,
2010.

                                BILL NUMBER:A9857C                REVISED 5/7/10

TITLE OF BILL:  An act to amend the estates, powers and trusts law, in
relation to certain formula clauses to be construed to refer to the
federal estate and generation-skipping transfer tax laws applicable to
estates of decedents dying after December 31, 2009 and before January 1,
2011

PURPOSE OF BILL:  Under the Internal Revenue Code now in effect, the
Federal estate tax is repealed for decedents dying in 2010, only to be
restored in 2011 at higher rates and with lower exemptions. Most estate
attorneys expected Congress to enact a new law prior to 2010 so as to
prevent the estate tax from expiring and did not anticipate that tempo-
rary repeal would occur. There is still a possibility that Congress may
reinstate an estate tax for 2010 retroactively.

Many wills, trusts and beneficiary forms prepared prior to 2010 were
based on formula dispositions in the case of married testators.  The aim
was typically to leave as much as possible on the first spouse's death
to a trust or to individuals other than the surviving spouse (typically
issue of the decedent) without causing estate tax on the first spouse's
death. This was commonly referred to as a "credit shelter bequest",
since the amount involved ($3.5 million for decedent dying in 2009)
would be sheltered from estate tax on the first death by a "unified
credit" allowed under the Internal Revenue Code. The credit shelter
bequest is not subject to estate tax at the surviving spouse's death.
              

The credit shelter bequest is usually phrased in terms of the maximum
amount that can pass free of Federal estate tax on the first death, or
in terms of like effect. The same results were obtained with formulas
leaving a spouse outright or in a form qualifying for a marital
deduction against the Federal estate tax, the minimum amount necessary
to avoid imposition of an estate tax on the first spouse's death. With
repeal of the estate tax, these formula clauses could be interpreted to
leave the entire estate in a credit shelter disposition and nothing to
the spouse or in a form qualifying for a marital deduction. This conclu-
sion is reached since the entire estate and not just the part formerly
sheltered by statutory credits can now pass under a credit shelter
disposition without there being any estate tax.

The Federal generation-skipping transfer tax is also temporarily
repealed for transfers in 2010. Many wills and testamentary instruments
also left to grandchildren (or to trusts that would eventually pass to
grandchildren) maximum amounts allowable without imposition of a Federal
generation skipping transfer tax. With repeal, this amount is now unlim-
ited, and may pass to grandchildren to the detriment of the decedent's
children.

The purposes of the bill, accordingly, are:

1. To preserve the form in which most testators expected their estates
to be divided prior to the unexpected repeal of the Federal estate tax;

2. To assure that a surviving spouse will not be disinherited and left
to exercise a right of election under Article 5 of the Estates, Powers
and Trusts Law;

3. To shelter assets in a credit shelter disposition for the time estate
tax may be reinstated;

4, To prevent unwarranted amounts from passing to grandchildren to the
detriment of children.

SUMMARY OF PROVISIONS:  The bill, which applies to assets that are
distributed upon the death of a decedent through a will or revocable
trust, amends the Estates, Powers and Trusts Law to provide that a
formula in a will, or trust executed or created prior to January 1, 2010
providing, in sum and substance, for a bequest of an amount of property
that can be sheltered from Federal estate tax by reason of credits
against such tax, shall be construed under the Internal Revenue Code of
1986 as in effect for decedents dying on December 31, 2009, in the case
of a decedent who is survived by a spouse, and who dies during 2010 at a
time when the Federal estate tax is repealed. The Federal estate tax is
not deemed repealed if it is legally reinstated retroactively to the
time of the decedent's death. This legislation does not apply to irrev-
ocable trusts.

Similarly, if a will or revocable trust executed or created prior to
January 1, 2010 contains a bequest which in sum and substance refers to
the decedent's unused exemption from the federal generation skipping
transfer tax, then such bequest shall, be construed under the Internal
Revenue Code of 1986 in effect on December 31, 2009 with respect to
generation skipping transfers on such date. This applies in the case of
a decedent who dies during 2010 at a time when the federal generation
skipping transfer tax is not in effect. Again, the federal generation
skipping transfer tax is considered to be in effect if legally rein-
stated retroactively to the date of decedent's death.

This legislation also includes a provision exempting any will or trust
that already has provisions drafted by the testator determining what
should happen with formula clause provisions in the event that estate or
generation-skipping transfer tax is repealed.

Finally, this legislation provides that any affected beneficiary or the
executor or trustee may bring a proceeding within a year of the
decedent's date of death to determine whether the decedent intended that
that the formula clause be construed with respect to the law as it
existed on the decedent's date of death (rather than on December 31,
2009). In that regard, the legislation also provides that extrinsic
evidence may be admitted to establish the decedent's intent.

EXISTING LAW:  Existing Law following repeal of the Federal estate tax
and generation skipping transfer tax is unclear. It is conceivable that
all of a decedent's property may be held by a court to pass under a
credit shelter disposition to the detriment of a surviving spouse.

It is also possible that a decedent's children may be deprived of prop-
erty all of which is held to pass under a bequest of a decedent's unused
exemption from the Federal generation skipping transfer tax.

JUSTIFICATION:  Without this legislation, due to the repeal of federal
estate and generation skipping tax, when there is a formula clause in a
will, the intent of the testator cannot be carried out or determined
through a construction proceeding. The only remedy available is a costly
right of election proceeding. This legislation will therefore avoid
needless litigation to the benefit of beneficiaries of the decedent and
the court system as well.

LEGISLATIVE HISTORY: New bill, 2010.

FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS:  There are no
fiscal implications.

EFFECTIVE DATE:  This act shall take effect immediately, and shall be
deemed to have been in full force and effect on and after January 1,
2010.