Senate Bill S5080

                                BILL NUMBER:S5080

TITLE OF BILL:  An act to amend the estates, powers and trusts law, in
relation to incorporation by reference, as a testamentary trust

This is one in a series of measures being introduced at the request of
the Chief Administrative Judge upon the recommendation of her
Surrogate's Court Advisory Committee.

This measure would permit a testator to incorporate into a will, as a
testamentary trust, the provisions of a preexisting inter vivos trust
that has terminated or been revoked prior to the testator's death by
someone other than the testator. This measure would allow the
disposition of probate property according to the terms of the trust
without having to repeat the terms of the trust in the will.

EPTL 3-3.7, the "pour-over" statute, permits a testator to dispose of
or appoint by will all or part of his or her estate ("pour-over
assets") to the trustee of an existing trust, including one that is
amendable or revocable or both ("receptacle trust"). However,
paragraph (e) provides that the revocation or termination of the
receptacle trust before the testator's death will cause the
disposition or appointment "to fail, unless the testator has made an
alternative disposition." Because pour-over wilts customarily provide
for the disposition of the testator's entire probate estate or
residuary estate to the trustee of an inter vivos trust created by
              

himself or herself or by another person (see, e.g., Matter of Sackler,
145 Misc.2d 950 (Nassau Co. 1989); Matter of Pozarny, 177 Misc.2d752
(Kings Co. 2002)), it is imperative that the testator provide for an
alternative disposition in the event that the pour-over fails because
the receptacle trust is not in existence at the testator's death. The
alternative is distribution in intestacy (EPTL 4-1.1) of the pour-over
assets.

Many different circumstances may cause a receptacle trust to terminate
or be revoked, the situation governed by paragraph (e). A trust for
the testator's grandchildren may terminate and be distributed outright
when they become 30 years of age. Or the trust for the testator's
aunt, created by the testator's spouse, may be revoked without the
testator's knowledge. Or a discretionary inter vivos trust may be
exhausted for the support or benefit of the beneficiaries. Or the
trust may have been terminated for tax or other reasons, inadvertently
or unknowingly, jeopardizing the original estate plan.

To deal with these possibilities, attorneys often provide for an
alternative testamentary trust with dispositions identical to those of
the revoked receptacle trust. However, without the benefit of the
proposed amendment, it is necessary to recite in the will all of the
dispositive and other essential terms of the revoked trust in order to
foreclose an argument by intestate takers or contingent beneficiaries
that the provisions of the revoked trust cannot be "incorporated by
reference." The rule prohibiting incorporations by reference was
stated succinctly in Booth v. the Baptist Church of Christ (126 NY
215, 297248 (1891)): "It is unquestionably the law of this state that
an unattested paper which is of a testamentary nature cannot be taken
as a part of the will even though referred to by that instrument."


However, the rule prohibiting incorporation by reference "will not be
carried to 'a dryly logical extreme.'" In Matter of Rausch (258 NY
327, 331 (1932)), decided long before the enactment of EPTL 3-3.7, the
testator gave one-fifth of his residuary estate to the corporate
trustee of an inter vivos trust to be disposed of under the trust
agreement "which agreement is hereby made part of this my will." The
Appellate Division had determined that the rule forbidding the
incorporation of unattested documents had been violated and that the
testator had died intestate as to that one-fifth of the residue.
Finding that the disposition to the trustee was simply an enlargement
of the subject matter of an existing trust, Judge Cardozo rejected the
reasoning of the court below that this could not be done unless the
terms of the deed of trust were repeated in the will.

In spite of the reasoning and holding in Rausch, whether the terms of
a receptacle trust that has terminated or been revoked before the
death of the testator can be incorporated by reference to create a
testamentary trust may raise issues of first impression. For this
reason, as noted above, careful attorneys drafting pour-over wills for
their clients repeat in the will all of the terms of the receptacle
trust. The result is often an instrument of discouraging length and
complexity. The proposed amendment to paragraph (e) would enable the
testator to create a testamentary trust as an alternative disposition
without undue repetition and prolixity.

The proposed measure accomplishes that end by amending paragraph (e)
of EPTL 3-3.7 to allow the testator, by an express direction, to
create a testamentary trust to hold or dispose of the pour-over assets
by simply incorporating by reference the terms of the revoked or
terminated receptacle trust. Because revocation of the receptacle
trust by the testator himself or herself is most likely an indication
that the disposition in the will to the trust is intended to fail, the
amendment's application is limited to termination of the trust and
revocation by someone other than the testator. Specifically, the
amendment allows the testator to expressly direct in the will that
should the receptacle trust terminate or be revoked under EPTL
7-1.17(b) by someone other than the testator, the disposition in the
will to the trust does not fail but is a disposition to a testamentary
trust with terms identical to the revoked trust. The provision is not
applicable to a receptacle trust that has been amended rather than
revoked; EPTL 74.17(b) applies to "any amendment or revocation,"
clearly showing that the two are different concepts and that one is
not the other.

Under the proposed amendment, the possibility of fraud is not a
concern. EPTL 33.7 requires that the receptacle trust be in writing,
executed in accordance with EPTL 71.17 and be in existence and
identified by the will at its execution. Amendment or revocation of
the trust would also be subject to EPTL 74.17. Thus, the terms of the
trust instrument that are incorporated by reference in the will would
be capable of validation, thereby eliminating the opportunity for
fraud as to the terms of the testamentary trust.{1}

This measure, which would have no fiscal impact upon the State, would
take effect immediately and apply to pending or future proceedings
involving the interpretation of wills or instruments exercising a


power of appointment made by a testator who died on or after the
effective date.

Legislative History: None. New proposal.

{1} The 1967 enactment of EPTL 3-3.7 statutorily validated the
pour-over of estate assets by will to a properly executed inter vivos
trust that was in existence both at the date of the testator's will
and at the testator's death Moreover, EPTL 3-3 7(d) validated
dispositions or appointments to the trustee of an inter vivos trust
made by testators who died prior to the effective date of this section
by simply providing that such disposition or appointment ''shall be
construed to create a testamentary trust under and in accordance with
the terms of the trust instrument which the testator originally
intended should embrace the property disposed of or appointed, as such
terms appear in such trust instrument at the date of the testator's
death " In other words, in the case of testators who died prior to the
effective date of the statute, EPTL 3-3.7(d) created a testamentary
trust by incorporating the terms of the intended receptacle trust.