Bulletin: NY000143

Dear Associates:

The law of New York State regarding Lifetime Trusts (formerly referred to as "inter vivos" or "living" trusts) has been significantly changed by the enactment of Chapter 139 of the Laws of 1997. Portions of the statute are effective as of June 25, 1997, while other parts will become effective on December 25, 1997.

Merger Doctrine - abolished prospectively
In reviewing a trust for effectiveness under New York law, we have had to deal with the doctrine of merger: where the beneficiary and trustee are the same person, the trust may be invalid, and the Company will not insure title passing solely through the trustee as trustee (see e.g. Rose v. Hatch 125 N.Y. 427 (1891)). Where the trustee is alive, we normally call for title to be conveyed by the beneficiary-trustee individually and as trustee. If the trustee is deceased, we usually call for conveyance from the successor trustee(s), and the personal representative (executor or administrator) or distributees of the decedent trustee-beneficiary's estate. Each questionable trust and the appropriate action to take must be reviewed with counsel.

The new statute prospectively abolishes the merger doctrine (by amending EPTL §7-1-1). This aspect of the law is effective immediately. Lifetime Trusts validly created on or after June 25, 1997 will not be treated as possibly ineffective on the basis of the merger doctrine. Nor will the Company raise an objection as to validity where the trust was validly created before June 25, 1997 under the law of another state, and acquired real property on or after the effective date of the statute.

Unfortunately, the statute does not give retroactive validity to trusts created prior to the effective date. Until such time as the statute is amended, or the courts apply it retroactively, we will continue to apply the merger doctrine to trusts created before June 25, 1997.

Execution Requirements
The new statute establishes, for the first time, formal requirements for execution of a lifetime trust, effective on December 25, 1997 (see new EPTL §7-1.17). The trust must be acknowledged in the same manner as a conveyance of real property, or executed in the presence of two witnesses (similar to a will).