Disclaimer Wills: The Petition for Letters of Trusteeship

Disclaimer Wills: The Petition for Letters of Trusteeship

By Adam J. Gottlieb

A stable married couple with no serious family issues has several planning options when they consider the death of one or both spouses. Upon the death of one spouse, a question arises as to how to provide for the remaining life of the surviving spouse in a tax-advantaged way.  I often consider seriously a disclaimer trust in the deceased spouse's will, creating a degree of flexibility not found in other options.

The disclaimer provisions allow the surviving spouse to say he or she does not want some or all of the deceased spouse's assets.  Any disclaimed property passes to a trust (the terms of which are also in the deceased spouse's will) for the primary benefit of the surviving spouse.  To fund the disclaimer trust, the surviving spouse must, within nine months after the death of the deceased spouse, affirmatively disclaim or renounce his or her interest in some or all of the deceased spouse's assets, pursuant to EPTL 2-1.11 and IRC § 2518.

This blog entry is not about exploring the many tax planning options at the deceased spouse's death.  It is about a practical issue associated with the appointment of the trustee(s) of a disclaimer trust.  The deceased spouse's will includes the nominated trustee(s) of the disclaimer trust as well as the dispositive provisions of the trust, all of which are invoked when, but not before, the surviving spouse exercises his or her disclaimer.

Normally, in a Probate Petition, a will proponent (usually a surviving spouse in our facts) requests that the will be admitted to probate (i.e., request that the Surrogate's Court issue Letters Testamentary). Letters Testamentary is a Surrogate's Court document that indicates that the will is admitted to probate and that the nominated executor is appointed to serve as executor.  If the will has trust provisions which are effective immediately (e.g., without requiring a disclaimer), the will proponent can also request Letters of Trusteeship on that Probate Petition.  Letters of Trusteeship is a Court document that indicates that the nominated trustee(s) is appointed to serve as trustee(s). Assuming there are no objections, the Court may issue both Letters Testamentary and Letters of Trusteeship simultaneously. 

However, there is an issue which turns on whether the trust language in the will has been invoked at the time of the request for Letters of Trusteeship.  With disclaimer trust provisions in the will, when the Probate Petition is filed with the Court, the disclaimer documents in most cases will not yet have been filed, making the will provisions regarding the trust and the appointment of the trustee(s) superfluous. In this event, the Court will not entertain the Letters of Trusteeship portion of the Probate Petition. 

The disclaimer provisions of the will become effective only when the disclaimer documents have been timely filed with the Court.  Since the disclaimer documents usually make reference to certain provisions of the will, the Court will then need the will in order to understand the disclaimer documents.  Only after the disclaimer is timely filed will the Court entertain a Petition for Letters of Trusteeship.  Once the Court issues Letters Testamentary and the disclaimer is filed, the Court will require a separate Petition for Letters of Trusteeship.

While the procedure seems unnecessarily cumbersome, consider the possibility that the disclaimer may never be filed with the Court.  If the Court issues Letters of Trusteeship before the disclaimer is filed, then the Court will have given authority to the nominated trustee(s) over will provisions that have no legal effect.

To summarize, the probate of a disclaimer will should proceed in the following order of events:

  1. File a Probate Petition with the Court.  Note that the Court will not entertain a request for Letters of Trusteeship in the Probate Petition. 
  2. After Letters Testamentary have been issued by the Court, file the disclaimer documents with the Court within nine months of the decedent's death.
  3. After the disclaimer documents are filed, file a separate Petition for Letters of Trusteeship with the Court. Once the Court issues Letters of Trusteeship to, the disclaimer trust can be funded.