Two local surrogate court decisions this summer demonstrated why it's a good time to review the arrangements you've made for distributing your assets when you die.
The decisions in the estates of John Howard and Harold Pozarny, each disposing about $1 million in assets, called into question the effectiveness of certain revocable living trusts, court and legal officials said.
Both cases involved generic trusts, which were marketed nationally and contained provisions that don't apply to New York law. Pozarny's case resulted in relatives he sought to exclude being awarded about $60,000.
The post-mortem legal road traveled by Howard and Pozarny show that some residents could be holding documents that aren't designed to carry out their final wishes.
Living trusts typically are used to manage the assets of elderly or infirm individuals. Living trusts designate a trustee to care for the assets of the beneficiary and can be tied to a will bequeathing assets after death.
The two significant local decisions involved individuals serving as both trustee of their own assets and sole beneficiary. A state law change last year allows New York residents to serve as both trustee and beneficiary, but these trusts were written when the dual status was still illegal.
Both trusts also contain legal language that isn't recognized by New York law. For example, Howard's estate plan attempted to "incorporate by reference" terms from his trust into his will. Because New York law does not allow incorporation by reference, a third of his assets were at risk of being distributed contrary to his wishes.
Pozarny's case, which is under appeal, has become a focal point for local critics of nationally marketed "easy-to-use" trust kits.
"This will and trust agreement collectively represent the most egregious example of maladroit drafting this court has encountered," Erie County Surrogate Court Judge Joseph S. Mattina said in deciding the Pozarny case.
The judge's decision is filled with consumer warnings about the potential nightmares caused by "one-size-fits-all" trusts. He cites the "careless, even reckless, manner" with which the provisions are pieced together. Mattina believes Howard and Pozarny would have been better served with traditional wills.
Some experienced local attorneys and representatives of the Erie County Bar Association also are advising consumers to be cautious with mass marketed trust kits.
"I think there is particular concern in many circles that people are recommending the trust concept, not so much because it's a benefit to the client, but because it's a profitable marketing device," said Elizabeth G. Clark, an estate planning attorney for Hodgson, Russ, Andrews, Woods & Goodyear.
The trusts are marketed nationally through organizations such as the National Network and the Academy of Estate Planning Attorneys. The National Network is currently soliciting local attorneys to become members for a $12,000 investment.
Mattina said he believes the franchise style arrangement can leave inexperienced practitioners dealing out sophisticated estate and tax planning advice.
But Jeffrey Jayson, an attorney in Getzville who belongs to the National Network, said court and bar association officials are concerned because the growth of living trusts is making them obsolete.
Trusts are the best way to provide for asset transfers, because they are harder to challenge than wills and keep most estates out of probate court, Jayson said.
"In the future, 90 to 95 percent of these things will be decided by trusts because nobody wants to go to court and deal with Judge Mattina or any other judge," he said.
Jayson typically charges $1,800 to $2,500 for a living trust. Clients typically save thousands of dollars because deciding an estate in probate court can easily cost more than $15,000, he said.
Avoiding probate court could be one reason for drafting a trust. But a trust is not necessarily needed to avoid probate, according to George Riedel an estate-planning attorney with Lipsitz, Green, Fahringer, Roll, Salisbury & Cambria in Buffalo.
"Probate is used as a scare tactic by a lot of people. If everybody is happy in the family, then probate is not a problem," said Riedel, a district delegate to the New York State Bar Association.
He said trusts are wonderful documents, but clients should understand the reasons for establishing a trust. They are extremely effective for elderly individuals who need asset management, he said.
Trusts also are helpful for clients with assets in another state, because they incorporate the assets under one state court system.
Riedel serves on a New York State Bar Association committee assisting state residents who have problems with generic living trusts. He said people should be careful with documents designed out of state, because they may contain provisions not applying to New York law.
Pozarny's trust handling an $824,984 Merrill Lynch account and other assets was a collection of loose pages, placed in a binder, with page numbers not matching the table of contents.
The binder was easily subject to fraud, and the court could not determine if certain documents changing who got what were placed in the binder before or after Pozarny's death, according to Mattina's decision.
Pozarny wanted 99.75 percent of his estate to go to a friend, Anthony Campagna, and excluded his nieces and nephews. Mattina ruled the poorly written trust was ineffective to accept the "pour over" of assets from his will. The decision means the $60,000 in Pozarny's name, assets which had not been deeded to the trust, pass to his relatives.
Jayson said Pozarny's wishes were evident and the judge had the authority to honor the man's wishes rather than splitting hairs.
"How could the judge deliberately ignore what this person wanted to do with his estate," Jayson asked.