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NYSBA FALL 2000 | VOL. 33 | NO. 3 Trusts and Estates Law Section Newsletter A publication of the Trusts and Estates Law Section of the New York State Bar Association A Message from the Section Chair Our Section inaugu- died earlier than on the third anniversary of the per- rated summer with a flur- son’s disappearance, when the person’s absence fol- ry of legislative activity. lows exposure to a specific peril or where clear and Arthur Bongiovanni’s ad convincing evidence demonstrates that death is the hoc committee worked only reasonable explanation for the absence. Also around the clock and passing both houses was a bill that will require trusts achieved a timely, consen- and not-for-profit corporations that are private foun- sus Principal and Income dations to publish annually notice of the availability bill with the EPTL-SCPA for public inspection of their private annual founda- Legislative Advisory tion returns as filed with Internal Revenue Service. Committee and the New As of the submission of this letter, the only bill in our York State Banker’s Asso- area to be signed by the governor is an amendment ciation. The hallmark of to SCPA § 1708 that will authorize the court to dis- the compromise was to provide for a 4% unitrust on an opt-in, as opposed to opt-out, basis. Our Section submitted and advocated on behalf of ten pieces of affirmative legislation, and our Legislation and Taxa- Inside tion committees, chaired respectively by Ron Weiss Editor’s Message..............................................................................3 and Georgiana Slade, commented on dozens of pro- Required and Permitted Elections Under the Minimum Distribution Rules ......................................................................4 posed bills affecting our practice. (Natalie B. Choate) Unfortunately, from a Trusts and Estates stand- Expanding Relationships with Clients ......................................12 point, the state legislative session ended with a (John G. McQuaid) whimper, not a bang. The compromise Principal and Repealing the Rule Against Perpetuities: Should New York Follow the Crowd?..................................19 Income bill did not make it out of bill drafting in (Ira Mark Bloom) time for consideration by the legislature. Only two of Recent Changes in Rules and Procedures in New York our affirmative legislation bills passed both houses: and Florida Regarding Estate Taxes......................................28 one amending credit shelter formulae in wills execut- (Michael M. Mariani) ed prior to February 1, 2000, to eliminate references The In Terrorem Clause in New York After Ellis ........................29 to the credit for state death taxes; and the other mak- (Stephen Hochhauser) ing technical amendments to the mechanics for serv- United States Trust Law and the Hague Convention on Trusts ....................................................................................37 ice of process. Additionally, two bills sponsored by (Michael W. Galligan) the Surrogate’s Court Advisory Committee of the Q&A ................................................................................................42 Office of Court Administration passed both houses as (Kathleen M. Franklin) well; one permitting the non-judicial reformation of Case Notes—Recent New York State Surrogate’s trusts by trustees for certain tax purposes; and the and Supreme Court Decisions ..............................................43 other permitting the Court to find that a person who (Arlene Harris and Donald S. Klein) has been continuously absent for a three-year period Recent New York State Decisions................................................50 (John C. Welsh) pense with a bond when it authorizes the guardian fiduciary. In addition, there was a host of stimulating of an infant to invest the guardianship funds pur- social programs and an unparalleled opportunity for suant to an investment advisory agreement with a sightseeing. bank, trust company, brokerage house or other finan- As always, the Section depends upon its commit- cial service entity that is acceptable to the court. I tees in order to conduct the wealth of activities it per- will include a complete list of all enacted legislation forms for the benefit of both the public in general in our area in my next Chair’s letter. and its members in particular. If you are not current- We had a record turnout for the Fall Meeting in ly a committee member, I urge you to take a look at Sante Fe, New Mexico, September 20-24, 2000. The the list of committees contained on pages 55-56 of meeting’s educational program, co-chaired by this Newsletter and contact the Chair of the Commit- Colleen F. Carew and Charles F. Gibbs, was “Repre- tee with which you would like to become involved. senting the Fiduciary: the Problems and the Reme- For those of you who attended the Fall Meeting, dies.” It covered timely ethical and conflict issues it was great seeing you in Sante Fe! between fiduciaries and beneficiaries and considered a whole panoply of miscellaneous proceedings that can be brought under the SCPA by and against a Joshua S. Rubenstein The Expanded 5th Edition of the SENIOR CITIZENS HANDBOOK Is Now Available Order Multiple Copies for Your NYSBA Clients. They’ll be Happy You Did! Senior Citizens Handbook Young Lawyers Section Orders are being accepted for the 5th Edition of Fifth Edition the Senior Citizens Handbook, produced by the A Guide to Programs New York State Bar Association Young Lawyers and Laws Affecting Older New Yorkers Section (YLS). This 262-page publication, pub- lished in large print type, comprehensively cov- ers programs and laws affecting older New Yorkers. The publication price is $10.00 per copy (plus 8% sales tax), to cover the print- ing and postage costs. To order the Senior Citizens Handbook, please send a check for $10.80 to: Senior Citizens Handbook, NYSBA, One Elk Street, Albany, NY 12207 You must include your member I.D. number to receive discount. Phone requests will not be accepted. 2 NYSBA Trusts and Estates Law Section Newsletter | Fall 2000 | Vol. 33 | No. 3 Editor’s Message In this issue of the against Perpetuities and whether it is time to abolish Newsletter, there is an it. Steve Hochhauser has used his personal experi- article for everyone. A ence in a case that was taken through the Appellate wide range of topics is Division, and written on the enforceability of the in included. terrorem clause in New York. The final inclusion involves international planning. Mike Galligan dis- Natalie Choate, cusses the need for ratification of the Hague Conven- whose book on retire- tion on the Law Applicable to Trusts. Many foreign ment benefits, Life and countries do not recognize trusts as an entity and the Death Planning for Retire- Convention would allow trusts to function in such ment Benefits, is a bible for places. many practitioners, has written a clear and inter- Please send questions for the next Question and esting article for our Newsletter on the many elections Answer Column. The one inquiry which was involved in minimum distribution planning for IRA received for this issue was answered by Kathy acounts. Mike Mariani has summarized changes in Franklin and I thank her. New York and Florida law. John McQuaid raises practical points regarding working with our clients. Magdalen Gaynor Professor Bloom weighs in on the topic of the Rule (Paid Advertisement) NYSBA Trusts and Estates Law Section Newsletter | Fall 2000 | Vol. 33 | No. 3 3 Required and Permitted Elections Under the Minimum Distribution Rules A Review of Deadlines and Default Rules for IRA Owners, Beneficiaries and Sponsors By Natalie B. Choate Introduction Benefits may be distributed to an individual benefici- ary in annual instalments over a period not exceed- This article discusses certain elections an IRA ing the beneficiary’s life expectancy. If the sole bene- owner (the “participant”) or beneficiary is required ficiary of the account is the participant’s surviving (or may be permitted) to make under the “minimum spouse, these annual distributions must commence distribution rules” of § 401(a)(9) of the Code.1 The by the later of December 31 of the year following the rules discussed here also apply to Roth IRAs except year of the participant’s death or December 31 of the as otherwise specified. In general, the article points year the participant would have attained age 70½.9 If out that deadlines and default rules for some of the the individual beneficiary is not the participant’s sur- elections may create unexpected consequences, and viving spouse (or if the spouse is one of multiple that IRA sponsors can make things easier for them- individual beneficiaries), the distributions must com- selves and their clients by thoughtful drafting in the mence by December 31 of the year following the year IRA agreement. The article also discusses issues of the participant’s death.10 raised by changes in the terms of an IRA agreement (or by transfer of funds from one IRA sponsor to How is it determined whether the general rule or another, where the applicable account agreements the exception applies? The plan “may adopt a provi- have different terms). sion specifying which of the two methods” applies, or “may adopt a provision that permits employees This article assumes the reader is familiar with (or beneficiaries) to elect on an individual basis” the minimum distribution rules that apply to retire- which method applies.11 Most IRA agreements per- ment plans, and in particular with the tax deferral

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