senate Bill S3790

Amended

Relates to the exercise of a power of appointment and an authorized trustee's authority to invade trust principal

download pdf

Sponsor

Bill Status


  • Introduced
  • In Committee
  • On Floor Calendar
    • Passed Senate
    • Passed Assembly
  • Delivered to Governor
  • Signed/Vetoed by Governor
view actions

actions

  • 15 / Feb / 2013
    • REFERRED TO JUDICIARY
  • 29 / Apr / 2013
    • AMEND AND RECOMMIT TO JUDICIARY
  • 29 / Apr / 2013
    • PRINT NUMBER 3790A
  • 04 / Jun / 2013
    • 1ST REPORT CAL.1016
  • 05 / Jun / 2013
    • 2ND REPORT CAL.
  • 10 / Jun / 2013
    • ADVANCED TO THIRD READING
  • 11 / Jun / 2013
    • SUBSTITUTED BY A7061

Summary

Relates to the exercise of a power of appointment and an authorized trustee's authority to invade trust principal.

do you support this bill?

Bill Details

Versions:
S3790
S3790A
Legislative Cycle:
2013-2014
Law Section:
Estates, Powers and Trusts Law
Laws Affected:
Amd ยง10-6.6, EPT L

Sponsor Memo

BILL NUMBER:S3790

TITLE OF BILL: An act to amend the estates, powers and trusts law, in
relation to the exercise of a power of appointment and an authorized
trustee's authority to invade a trust

This is one in a series of measures being introduced at the request of
the Chief Administrative Judge upon the recommendation of her
Surrogate's Court Advisory Committee. This measure would make
technical corrections and clarifying amendments to chapter 451 of the
Laws of 2011, which substantially altered New York's so-called
"decanting statute" - EPTL 10-6.6, enacted in 1992. Section 10-6.6(b)
codifies decisional law that permitted a trustee who has authority to
invade the trust principal to exercise that power by creating new
trusts. This effectively allows the rewriting of an irrevocable trust
by permitting trust assets to be "appointed" or "decanted" to another
trust. Chapter 451 enacted provisions to make the statute more
flexible and more explicit with respect to the procedure required to
effect a decanting.

(1) Exclusion of Successor or Remainder Beneficiaries

L. 2011, c. 451 enacted a new paragraph (b) to EPTL 10-6.6, to provide
as follows:

"(b) An authorized trustee with unlimited discretion to invade trust
principal may appoint part or all of such principal to a trustee of an
appointed trust for, and only for the benefit of, one, more than one
or all of the current beneficiaries of the invaded trust (to the
exclusion of any one or more of such current beneficiaries). The
successor and remainder beneficiaries of such appointed trust shall be
one, more than one or all of the successor and remainder beneficiaries
of such invaded trust (to the exclusion of any one or more of such
successor and remainder beneficiaries)." (emphasis added.)

In light of the language of the second sentence of paragraph (b), the
question has arisen whether the interests of all the successor or
remainder beneficiaries of the original ("invaded") trust may be
excluded in the new ("appointed") trust.

Although it can be argued that the phrase "to the exclusion of any one
or more" literally can be read to encompass "to the exclusion of all",
more importantly, permitting the exclusion of all of such successor or
remainder beneficiaries appears more in keeping with the probable
intent of the original grantor. A grantor who intentionally provides a
trustee with the unlimited discretion to distribute the entire trust
property outright to one or more "current beneficiaries" has thereby
rendered the interests of the "successor or remainder beneficiaries"
inherently susceptible to exclusion. In addition, it is highly
improbable that a grantor would intend that a trustee have the power
to exclude all but one of any number of successor or remainder
beneficiaries (as is clearly allowed under the present statutory
language), but not have the power to exclude all such beneficiaries.

It is therefore proposed that paragraph (b) of EPTL 10-6.6 be amended
to read as follows:


(b) An authorized trustee with unlimited discretion to invade trust
principal may appoint part or all of such principal to a trustee of an
appointed trust for, and only for the benefit of, one, more than one
or all of the current beneficiaries of the invaded trust (to the
exclusion of any one or more of such current beneficiaries). The
successor and remainder beneficiaries of such appointed trust (shall)
may be one, more than one or all of the successor and remainder
beneficiaries of such invaded trust (to the exclusion of any one (or),
more than one or all of such successor and remainder beneficiaries)."

(2) Requirement of Majority or Unanimity in the Decanting, Decision

Although the new statute is silent on the matter, the Legislative
Memorandum to the statute recites that the decision to decant requires
only a "majority" of trustees ("Unless expressly limited by the terms
of the invaded trust, a majority of the trustees.... may pay part or
all of the principal of the invaded trust to an appointed trust." P.6
of Legislative Memo).

On the other hand EPTL 10-6.7 provides that, unless the instrument
provides otherwise, unanimity is required for the exercise of a "power
of appointment" held by "two or more" persons. EPTL 10-6.7 would
literally apply to the decanting power because such power is
specifically denominated as a "power of appointment" under 10-6.6(d)
("An exercise of the power to invade trust principal under paragraphs
(b) and (c) of this section shall be considered the exercise of a
special power of appointment as defined in section 10-3.2 of this
article").

However, under 10-6.6(h) a trustee has a "fiduciary duty to exercise
the power in the best interests of the objects of the power" and it
would therefore appear that the default rule should be the rule
contained in EPTL 10-10.7, which applies to powers held jointly by
fiduciaries, and which allows a majority decision to govern where
there are "three or more fiduciaries", unless the instrument provides
otherwise.

It is therefore proposed that EPTL 10-6.6(d) be amended to read as
follows:

(d) An exercise of the power to invade trust principal under
paragraphs (b) and (c) of this section shall be considered the
exercise of a special power of appointment as defined in section
10-3.2 of this article provided. however. that such exercise shall be
governed by the provisions of section 10-10.7 of this article.

(3) Obsolete Reference to EPTL 7-1.17

L. 2011, c. 451 enacted a new paragraph (s)(1) to EPTL 10-6.6, to
provide as follows:

"(s)(1) The term "appointed trust" means an irrevocable trust which
receives principal from an invaded trust under paragraph (b) or (c) of
this section including a new trust created by the creator of the
invaded trust or by the trustees, in that capacity of the invaded
trust. For purposes of creating the new trust, the requirement of
section 7-1.17 of this chapter that the instrument be signed by the


creator shall be deemed satisfied by the signature of the trustee of
the appointed trust." (emphasis added.)

A technical correction is needed to the second sentence of paragraph
(s)(1) because, pursuant to a 2010 amendment to 7-1.17(a), the
requirement that "the instrument be signed by the creator" has been
changed, and 7-1.17(a) now provides as follows:

"Every lifetime trust shall be in writing and shall be executed and
acknowledged by the person establishing such trust and, unless such
person is the sole trustee, by at least one trustee thereof in the
manner required by the laws of this state for the recording of a
conveyance of real property 07; in lieu thereof executed in the
presence of two witnesses who shall affix their signatures to the
trust instrument." (emphasis added.)

It is therefore proposed that paragraph (s)(1) be amended to provide
as follows:

(s)(1) The term "appointed trust" means an irrevocable trust which
receives principal from an invaded trust under paragraph (b) or (c) of
this section including a new trust created by the creator of the
invaded trust or by the trustees, in that capacity, of the invaded
trust. For purposes of creating the new trust, the requirement of
section 7-1.17 of this chapter that the instrument be (signed by the
creator) executed and acknowledged by the person establishing such
trust shall be deemed satisfied by the (signature) execution and
acknowledgment of the trustee of the appointed trust.

(4) Discretionary Income Beneficiaries

L. 2011, c. 451 enacted a new paragraph (b) to EPTL 10-6.6, to provide
as follows:

(b) An authorized trustee with unlimited discretion to invade trust
principal may appoint part or all of such principal to a trustee of an
appointed trust for. and only for the benefit of one. more than one or
all of the current beneficiaries of the invaded trust (to the
exclusion of any one or more of such current beneficiaries). The
successor and remainder beneficiaries of such appointed trust shall be
one, more than one or all of the successor and remainder beneficiaries
of such invaded trust (to the exclusion of any one or more of such
successor and remainder beneficiaries)." (emphasis added.)

Because paragraph (s)(4) of the new 10-6.6 defines a "current
beneficiary" as someone "to whom the trustees may distribute principal
at the time of the exercise of the power", (emphasis added) the
question has arisen whether the interest of a discretionary
beneficiary to whom income, but not principal, may be paid under the
original ("invaded") trust, can be continued in the new ("appointed")
trust.

Although such continuation may seem literally prohibited under the
first sentence of paragraph(b), there appears to be no reason why a
grantor would want to prohibit a trustee from continuing such an
interest in the new trust.


It is therefore proposed that paragraph (s)(4) of 10-6.6 be amended to
read as follows:

(4) The term "current beneficiary or beneficiaries" means the person
or persons (or as to a class, any person or persons who are or will
become members of such class) to whom the trustees may distribute
principal at the time of the exercise of the power., provided however
that the interest of a beneficiary to whom income, but not principal.
may be distributed in the discretion of the trustee of the invaded
trust may be continued in the appointed trust.

This act shall take effect immediately.

Legislative History: None. New proposal.

view bill text
                    S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  3790

                       2013-2014 Regular Sessions

                            I N  S E N A T E

                            February 15, 2013
                               ___________

Introduced  by Sen. BONACIC -- (at request of the Office of Court Admin-
  istration) -- read twice and ordered printed, and when printed  to  be
  committed to the Committee on Judiciary

AN  ACT  to amend the estates, powers and trusts law, in relation to the
  exercise of a power of appointment and an authorized trustee's author-
  ity to invade a trust

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section 1. The opening paragraph of paragraph (b) of section 10-6.6 of
the  estates, powers and trusts law, as added by chapter 451 of the laws
of 2011, is amended to read as follows:
  An authorized trustee with unlimited discretion to invade trust  prin-
cipal  may  appoint  part  or  all  of such principal to a trustee of an
appointed trust for, and only for the benefit of, one, more than one  or
all  of the current beneficiaries of the invaded trust (to the exclusion
of any one or more of such current  beneficiaries).  The  successor  and
remainder beneficiaries of such appointed trust [shall] MAY be one, more
than  one  or  all  of the successor and remainder beneficiaries of such
invaded trust (to the exclusion of any one [or], more THAN ONE OR ALL of
such successor and remainder beneficiaries).
  S 2. Paragraph (d) of section 10-6.6 of the estates, powers and trusts
law, as added by chapter 451 of the laws of 2011, is amended to read  as
follows:
  (d)  An  exercise  of  the power to invade trust principal under para-
graphs (b) and (c) of this section shall be considered the exercise of a
special power of appointment as defined in section 10-3.2 of this  arti-
cle  PROVIDED,  HOWEVER,  THAT  SUCH  EXERCISE  SHALL BE GOVERNED BY THE
PROVISIONS OF SECTION 10-10.7 OF THIS ARTICLE.
  S 3. Subparagraphs 1 and 4 of paragraph (s) of section 10-6.6  of  the
estates,  powers  and trusts law, as added by chapter 451 of the laws of
2011, are amended to read as follows:

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD08085-01-3

S. 3790                             2

  (1) The term  "appointed  trust"  means  an  irrevocable  trust  which
receives  principal  from an invaded trust under paragraph (b) or (c) of
this section including a new trust created by the creator of the invaded
trust or by the trustees, in that capacity, of the  invaded  trust.  For
purposes of creating the new trust, the requirement of section 7-1.17 of
this chapter that the instrument be [signed by the creator] EXECUTED AND
ACKNOWLEDGED  BY  THE  PERSON  ESTABLISHING  SUCH  TRUST shall be deemed
satisfied by the [signature] EXECUTION AND ACKNOWLEDGMENT of the trustee
of the appointed trust.
  (4) The term "current beneficiary or beneficiaries" means  the  person
or  persons  (or  as  to  a class, any person or persons who are or will
become members of such class) to whom the trustees may distribute  prin-
cipal  at  the  time of the exercise of the power, PROVIDED HOWEVER THAT
THE INTEREST OF A BENEFICIARY TO WHOM INCOME, BUT NOT PRINCIPAL, MAY  BE
DISTRIBUTED IN THE DISCRETION OF THE TRUSTEE OF THE INVADED TRUST MAY BE
CONTINUED IN THE APPOINTED TRUST.
  S 4. This act shall take effect immediately.

Comments

Open Legislation comments facilitate discussion of New York State legislation. All comments are subject to moderation. Comments deemed off-topic, commercial, campaign-related, self-promotional; or that contain profanity or hate speech; or that link to sites outside of the nysenate.gov domain are not permitted, and will not be published. Comment moderation is generally performed Monday through Friday.

By contributing or voting you agree to the Terms of Participation and verify you are over 13.