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July 16th, 2008
Important Revision of EPTL 5-1.4: Extension of Revocatory Effect of Divorce
On July 7, 2008, Governor Paterson signed into law a bill1 that extends the revocatory effect of divorce to non-probate dispositions of property and certain fiduciary designations of a former spouse. This article summarizes the provisions of the newly enacted law and outlines how it differs from the Uniform Probate Code Section after which it was patterned.2
I. Background and Impetus for the Bill
In recent years, the divorce rate among Americans has consistently risen, with second and even third marriages becoming more and more common. In 2007, for example, more than 55,000 marriages in New York ended in divorce or annulment, and 25% of these marriages had lasted fewer than five years.3 At the same time, revocable trusts have become an increasingly popular estate planning tool, as practitioners and clients have come to understand the many advantages offered by such trusts.4 And frequently, a significant portion of a client’s overall net worth consists of non-probate assets that pass independently of a Will or revocable trust, such as life insurance, retirement plans and property held jointly with rights of survivorship.
The importance of updating an estate plan in the wake of a divorce should be apparent. But as divorcing couples struggle to reach an agreement on such pressing issues as child custody, visitation and support, estate planning is often put on the back burner. To be sure, the failure to implement changes after a divorce is rarely based on any lingering affection for a former spouse; most clients simply neglect to focus and take the necessary affirmative action. Fortunately, there has been a statutory “default rule” in New York for many years that addresses this situation, albeit in limited circumstances. The default rule is contained in Estates, Powers and Trusts Law Section 5-1.4. As originally enacted in 1967, Section 5-1.4 creates a conclusive presumption that divorce is deemed to revoke all dispositions in a Will to a former spouse (as well as fi duciary nominations of a former spouse), and the dispositions are treated as if the former spouse predeceased the testator.5 Under other provisions of New York law, divorce also revokes the nomination of a former spouse as a health care agent6 and the power of a former spouse to dispose of a decadent's remains.7 And New York case law has long provided that divorce transforms a tenancy by the entirety into a tenancy in common.8 Incongruously, however, the revocatory effect of divorce has never before been extended in New York to joint tenancies with rights of survivorship, or to the designation of a former spouse as an attorney-in-fact or as the benefi ciary of non-probate assets.
II. The New Law
The proliferation of the use of revocable trusts (which are often the functional equivalent of Wills), coupled with the substantial growth in value of other non-probate property and the steady rise in divorce rates, presented a strong case for extending the revocatory effect of a divorce beyond a Will. Accordingly, the bill that was signed into law last July repealed existing Section 5-1.4 and replaced it with a new Section 5-1.4. The new Section 5-1.4 creates a consistent rule with respect to probate and non-probate transfers. Specifically, the new law provides for the revocation upon divorce of dispositions to or for the benefit of a former spouse by Will, revocable trust, security registration in benefi ciary form (TOD), beneficiary designations in a life insurance policy and (to the extent permitted by law) benefi ciary designations in a pension or retirement plan. It also provides for the revocation upon divorce of all nominations of a former spouse to serve in any fi duciary or representative capacity, including as executor, trustee, conservator, guardian, agent or attorney-infact. Finally, the new law provides that divorce severs the interests of former spouses in property held by them at the time of divorce as joint tenants with rights of survivorship, and transforms all such interests into tenancies in common (which, as noted above, had already been the case for property held in a tenancy by the entirety).
An important aspect of the new law is that it includes opt-out provisions for the expanded default rule, both for dispositions to a former spouse and fiduciary nominations9 and for severances of a joint tenancy.10 For circumstances in which a couple may wish not to have a disposition or appointment revoked or a joint tenancy severed, a client may elect out of the expanded default rule by expressly providing in the applicable “governing instrument” (as defined in the statute)11 that divorce shall not revoke such dispositions to, nominations in favor of, or joint tenancies with a former spouse.12
III. Uniform Probate Code
Given that new EPTL 5-1.4 was patterned after Revised UPC § 2-804,13 the two laws contain many similar provisions. For example, under both UPC § 2-804 and EPTL 5-1.4, dispositions to a former spouse that are revoked by divorce are revived by the remarriage of the former spouses to each other. And importantly, both laws protect payors or other third parties from liability (where, for example, payment is made to a former spouse designated in a governing instrument after a divorce has taken place), unless and until such payor or third party receives written notice of the divorce. Even after notice is received, the payor or third party has the option of discharging its liability by depositing the property in question with the court that has jurisdiction over the decedent’s estate.
Despite many similarities, practitioners should be aware that there are certain substantive differences between the two laws. First, under UPC § 2-804 divorce simultaneously revokes dispositions not only in favor of a former spouse, but also, and more broadly, dispositions in favor of any relative of the former spouse who, as a result of a divorce, is no longer related to the testator by blood, adoption or affinity.14 The draftspersons of the New York bill considered extending the scope of revocation to a divorced spouse’s relatives, but ultimately decided to limit the application of new Section 5-1.4 only to former spouses. Second, UPC § 2-804 includes a provision designed to address its possible preemption by the Employee Retirement Income Security Act of 1974 (ERISA), which federalized pension and employee benefit law.15 Section 514(a) of ERISA provides that Title I16 and IV17 of ERISA “shall supersede any and all State laws insofar as they may now or hereafter relate to any employee benefi t plan” governed by ERISA.18 The U.S. Supreme Court has held that, to the extent that a state law applies to employee benefi t plans governed by ERISA, federal law preempts any state law that automatically divests the designation of a spouse as benefi ciary of non-probate assets upon divorce.19 In an effort to circumvent the ERISA issue, UPC § 2-804 directs that if any of its provisions are preempted by federal law, the person who received property to which he or she was not entitled is obligated to return such property or is personally liable to the person who would have been entitled to such property if there were no preemption. Defining which provisions of state probate law “relate to” employee benefit plans continues to be a diffi cult task for the federal courts.20 Moreover, certain types of benefi t plans, such as governmental plans, are exempt from ERISA.21 In light of the foregoing, the New York bill did not attempt to override ERISA, and new Section 5-1.4 explicitly recognizes that pension and retirement plan benefi ts designated to a former spouse are revoked by divorce only to the extent permitted by law.22
IV. Effective Date
While the effective date provisions of new legislation are always important, the effective date section of the new statute deserves special attention. With respect to dispositions and nominations that take place only upon death, such as under a revocable trust, the revocation provisions apply to all testators who die after the effective date—July 7, 2008—even if the divorce was finalized prior to the effective date. For nominations of a former spouse in currently operative documents, however, such as powers of attorney, the revocation provisions apply only if the divorce is finalized after the effective date.23 And keep in mind that the revocatory effect will not apply if a client dies during the course of matrimonial proceedings, but before a divorce is fi nalized. Therefore, it is imperative that clients who are contemplating a separation or divorce review their estate planning documents and consult with an attorney to evaluate whether interim changes should be made.
Although the expanded default rules contained in new Section 5-1.4 are designed to carry out the likely intent of clients in the vast majority of cases, they may not effectuate the desired outcome in every particular situation. Estate planning attorneys are encouraged to study the new Section 5-1.4 and to counsel clients on its application in the context of each client’s individual circumstances.
- Bill A.8858-A/S.5966-A was enacted at 2008 N.Y. Laws ch. 173 and is now N.Y. Estates, Powers and Trusts Law 5-1.4 (EPTL) (effective July 7, 2008).
- Uniform Probate Code § 2-804 (1990) (UPC).
- See generally, http://www.health.state.ny.us/nydoh/vital_ statistics/2007/table48.htm & http://www.health.state.ny.us/ nydoh/vital_statistics/2007/table51.htm.
- See G. Warren Whitaker, Revocable Trusts in New York: Why Not?, N.Y.L.J., Sept. 22, 2000.
- EPTL 5-1.4 (1967), “Revocatory effect of divorce, annulment or declaration of nullity, or dissolution of marriage on disposition, appointment or other provision in will to former spouse.” It should be noted that the provisions of EPTL 5-1.4 apply not only in the case of divorce, but in the case of a judicial separation or annulment of a marriage. For ease of reference, however, this article refers solely to divorce as the event that triggers revocation.
- N.Y. Public Health Law § 2985(1)(e) (PHL).
- PHL § 4201(5).
- Stelz v. Shreck, 128 N.Y. 2631 (1891).
- EPTL 5-1.4(a).
- Id. at § (c).
- Id. at § (f)(5) “‘Governing Instrument’ includes, but is not limited to, a will, testamentary instrument, trust agreement (including, but not limited to, a totten trust account under pension, deferred compensation, death benefit, stock bonus or profit-sharing plan, account, arrangement, system or trust, agreement with a bank, brokerage firm or investment company, registration of securities in beneficiary form pursuant to part 4 of article 13 of this chapter, a court order, or a contract relating to the division of property made between the divorced individuals before or after the marriage, divorce, or annulment.”
- Id. at §§ (a) and (c).
- UPC § 2-804 (1990) (Revocation of Probate and Nonprobate Transfers by Divorce, No Revocation by Other Changes of Circumstances). UPC § 2-804 was originally promulgated as U.S.C. § 2-580 and was revised in 1990 to extend its reach to non-probate assets favoring a former spouse.
- See Hermon v. Urteago, 39 Cal. App. 4th 1525 (1995), for an interesting discussion of California’s revocation on divorce statute (Probate Code Section 6122), which, like the New York law, does not revoke dispositions to relatives of former spouses.
- ERISA, 29 U.S.C. §§ 1001-1461 (1988) (ERISA).
- ERISA, Title I, Protection of Employee Benefi t Rights, 29 U.S.C. §§ 1001, et seq. (1988).
- Id. at Title IV, Plan Termination Insurance.
- Id. at § 514(a), 29 U.S.C. § 1144(a) (1988).
- Egelhoff v. Egelhoff, 532 U.S. 141 (2001).
- For example, in Metropolitan Life Ins. Co. v. Hanslip, 939 F.2d 904 (10th Cir. 1991), the court held that ERISA preempted an Oklahoma statute that resembled new EPTL 5-1.4 and UPC § 2-804 (Okla. Stat. Ann. Tit. 15, § 178 (West Supp. 1992)), which attempted to apply revocation-upon-divorce rules to ERISAcovered death benefits. Meanwhile, in Mendez-Bellido v. Board of Trustees, 709 F. Supp. 329 (E.D.N.Y. 1989), the court denied ERISA preemption and applied EPTL § 4-1.6 (the so called “slayer rule”) reasoning “state laws prohibiting murderers from receiving death benefits are relatively uniform and there is little threat of creating a patchwork scheme of regulation sought to be avoided by the enactment of ERISA.”
- See ERISA at § 1003(b)(1) (1988).
- EPTL 5-1.4(a).
- See 2008 N.Y. Laws ch. 173, § 2 (“This section shall apply only where the marriage of a person executing a disposition, appointment, provision or nomination in a governing instrument, as defi ned in EPTL 5-1.4(f)(5), such section as added by section one of this act, to or for the benefit of a former spouse ends in a divorce or annulment, as defined in EPTL 5-1.4(f)(2), on or after such effective date or, where such a marriage ends prior to such effective date, only where such a disposition, appointment, provision or nomination takes effect only at the death of the person who executes it and such person dies on or after the effective date of this act.”) (Reproduced in the 2008 Amendments note in New York Surrogate’s Court, Lexis Nexis, 2009 ed. (the “Green Book”)).
Reprint with permission from: Trusts & Estates Law Section Newsletter, Summer 2009, Vol. 42, No. 2, published by the New York State Bar Association, One Elk Street, Albany, NY 12207.
Author: Linda Wank
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