senate Bill S4952

Establishes the formula for determining the interest payable on a delayed legacy; repealer

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Bill Status


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

  • 01 / May / 2013
    • REFERRED TO JUDICIARY
  • 04 / Jun / 2013
    • 1ST REPORT CAL.1021
  • 05 / Jun / 2013
    • 2ND REPORT CAL.
  • 10 / Jun / 2013
    • ADVANCED TO THIRD READING
  • 21 / Jun / 2013
    • COMMITTED TO RULES
  • 08 / Jan / 2014
    • REFERRED TO JUDICIARY
  • 28 / Jan / 2014
    • 1ST REPORT CAL.81
  • 03 / Feb / 2014
    • 2ND REPORT CAL.
  • 04 / Feb / 2014
    • ADVANCED TO THIRD READING
  • 20 / Mar / 2014
    • SUBSTITUTED BY A1185

Summary

Establishes the formula for determining the interest payable on a delayed legacy.

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Bill Details

See Assembly Version of this Bill:
A1185
Versions:
S4952
Legislative Cycle:
2013-2014
Law Section:
Estates, Powers and Trusts Law
Laws Affected:
Rpld §11-1.5 ¶¶(d) & (e), amd §11-A-2.1, EPT L; rpld §2102 sub 7, SCPA
Versions Introduced in 2011-2012 Legislative Cycle:
S7228A, A10047A

Sponsor Memo

BILL NUMBER:S4952

TITLE OF BILL: An act to amend the estates, powers and trusts law, in
relation to the payment of interest on delayed legacies; and to repeal
paragraphs (d) and (e) of section 11-1.5 of the estates, powers and
trusts law and subdivision 7 of section 2102 of the surrogate's court
procedure act relating thereto

PURPOSE OF BILL: The purpose of the bill is to change the law
regarding the payment of interest on a delayed pecuniary legacy. In
addition, this bill proposes to change the interest rate paid on
legacies from the statutory rate of six percent, to an interest rate
based on the Federal Funds Rate. This way, the beneficiary is
compensated according to the time value of money for the delay in
payment of their legacy.

JUSTIFICATION: EPTL 11-1.5 currently provides that interest is not
payable unless a demand is made upon the fiduciary prior to commencing
a proceeding in Surrogate's Court to compel payment of the legacy. The
current statute fixes interest at 6% starting seven months from the
time that letters testamentary, including preliminary letters
testamentary, are granted and permits the Court to award interest at
the legal or judgment rate set forth in the CPLR if the delay in
paying legacies was unreasonable.

I. CURRENT STATUTORY 6% INTEREST RATE IS UNREASONABLE The statutory
default interest rate should reflect the time value of money where the
delay is not unreasonable and the interest is paid by the estate or
trust. Paying interest at too high a rate is unfair to the residuary
beneficiaries whose share of the estate is diminished. Likewise,
paying interest at too low a rate unfairly enriches the residuary
beneficiaries at the expense of the legatee who is not compensated for
the delay in payment. The current fixed rate of 6% is far too high
based on current market interest rates and imposes a significant
economic burden on the residuary beneficiaries. In 1985, when the 6%
interest was fixed by statute, estates typically earned in excess of
6% on deposits. In situations where the Court finds the fiduciary's
delay in paying beneficiaries unreasonable, the Surrogate should
retain the power to surcharge the fiduciary, as this bill allows.
Penalty interest should be paid by the errant fiduciary and not the
estate or trust, as there is no justification in these situations to
impose an economic burden on residuary beneficiaries; yet, the current
statute allows for just that.

II. CURRENT LAW IS UNCLEAR The current statute encourages disputes and
unnecessary litigation. The courts have added greatly to the
uncertainty of how the statute applies when there is a delay in the
payment of a legacy. Some courts have allowed payment of interest even
when a legatee did not bring a proceeding for payment of interest.
Some courts require a legatee to make a demand upon fiduciary for the
payment of interest prior to bringing a proceeding for payment of
interest. Still other courts say that the demand is not necessary.
Adding to the uncertainty, some courts hold that interest may be
awarded, while other courts deem it mandatory. The cases also disagree
whether the residuary beneficiaries or fiduciary pay the cost of
interest to the legatee. The existing New York law requires each leg
of the triangle -the fiduciary, the legatee, and the residuary


beneficiary - to safeguard his or her interests which may result in
expensive legal proceedings. In the majority of situations where
judicial proceedings do not take place, there is a lack of uniformity
of practice and outcome. This is not desirable and therefore, the
statute should be revised to provide predictability.

III. ACCRUAL OF RIGHT TO INTEREST Unless the governing instrument
provides otherwise, interest should be paid starting seven months from
the date of issuance of letters, or if letters are not required, seven
months from the date of death or other date a beneficiary is entitled
to receive a legacy. The legatee should not be required to make a
formal demand or institute a judicial proceeding. It is unfair to
require a legatee to institute a judicial proceeding in order to
collect interest on a delayed payment of a legacy. If the law requires
a judicial proceeding, then, as a practical matter, only the legatees
who are the most aggrieved will institute a proceeding and collect
interest. Most likely, larger sums will be involved. If interest can
only be awarded at the discretion of the Court, then most legatees
will never receive interest because someone must institute a
proceeding in order to get the Court involved. In New York, many
estates - large or small, upstate or downstate - have no Court
involvement following the probate of the will.

IV: APPLICABLE INTEREST RATE The interest rate on delayed legacies
should not be permanently fixed by statute, but should fluctuate
depending on current economic conditions. This is critical to the
fairness of this proposed statutory reform. There is no one correct
interest rate to use as a reference. This proposal requires the
interest rate be set on the first business day of each calendar year
and fixed for that calendar year at the Federal funds rate less 1%,
but in no event less than 1/2 of 1%. By having the rate reset once
each year, fiduciaries can easily comply with the statute and do the
necessary computation. It should not be necessary to engage an
accountant or other professional to compute the interest. Moreover,
the legatee will receive a competitive interest rate based on current
economic conditions in light with what the estate should be earning.
There will be no need for the Surrogate's Court to compute or verify
interest, absent formal objections to the computation within an
accounting or other proceeding.

V. DEDUCTIBILITY OF INTEREST FOR ESTATE INCOME TAX PURPOSES Under
current income tax law, the legatee must report the interest as
interest income on Schedule B (Form 1099 INT issued by the estate),
but the estate cannot deduct the interest as an expense due to
limitations on deductions for personal interest. Therefore, the
current New York statutory scheme is not tax efficient. To be tax
efficient, the interest paid on delayed payment of a legacy should be
characterized under the New York Principal and Income Act (EPTL 11-A)
as accounting income, so that its payment will carry out the
distributable net income ("DNI") in the same manner that the share of
income due a pecuniary legacy in trust carries out DNI.

LEGISLATIVE HISTORY: S.7228-A of 2012: Died on Senate Floor Calendar,
Passed Assembly

FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS: None.


EFFECTIVE DATE: This act shall take effect sixty days after having
become a law and shall apply only to the estates of decedents who
shall have died on or after such effective date.

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

                                  4952

                       2013-2014 Regular Sessions

                            I N  S E N A T E

                               May 1, 2013
                               ___________

Introduced  by  Sen. BONACIC -- 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
  payment  of interest on delayed legacies; and to repeal paragraphs (d)
  and (e) of section 11-1.5 of the estates, powers and  trusts  law  and
  subdivision  7  of section 2102 of the surrogate's court procedure act
  relating thereto

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

  Section  1.  Paragraphs  (d) and (e) of section 11-1.5 of the estates,
powers and trusts law are REPEALED.
  S 2. Paragraph 3 of section 11-A-2.1 of the estates, powers and trusts
law, as added by chapter 243 of the laws of 2001, is amended to read  as
follows:
  (3)  [A]  UNLESS OTHERWISE PROVIDED BY THE TERMS OF THE WILL OR TRUST,
COMMENCING (A) SEVEN MONTHS FROM EITHER THE DATE OF DEATH OR OTHER  DATE
A  BENEFICIARY  IS TO RECEIVE A PECUNIARY AMOUNT OUTRIGHT IF LETTERS ARE
NOT REQUIRED, OR (B) SEVEN  MONTHS  FROM  THE  TIME  LETTERS,  INCLUDING
PRELIMINARY OR TEMPORARY LETTERS, ARE GRANTED IF LETTERS ARE REQUIRED, A
fiduciary  shall distribute INCOME to a beneficiary who receives a pecu-
niary amount outright [the interest or any other amount provided by  the
will, the terms of the trust, or applicable law], from net income deter-
mined  under  paragraph  (2)  or  from  principal to the extent that net
income is insufficient[. If a beneficiary  is  to  receive  a  pecuniary
amount outright from a trust after an income interest ends and no inter-
est  or other amount is provided for by the terms of the trust or appli-
cable law, the fiduciary shall distribute the interest or  other  amount
to  which  the beneficiary would be entitled under applicable law if the
pecuniary amount were required to be paid under a will],  OF  AN  AMOUNT
EQUAL  TO  THE  PECUNIARY  AMOUNT  MULTIPLIED BY AN INCOME FACTOR, WHICH
SHALL BE SET (OR RESET) ON THE FIRST BUSINESS DAY OF EACH CALENDAR  YEAR

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD03692-01-3

S. 4952                             2

AND  FIXED  FOR  THAT  CALENDAR YEAR AT THE TARGET FEDERAL FUNDS RATE AS
ANNOUNCED BY THE FEDERAL RESERVE BOARD  (OR  IN  THE  EVENT  THE  TARGET
FEDERAL FUNDS RATE IS A RANGE OF RATES, THE HIGH OF THAT RANGE) LESS ONE
PERCENT, BUT IN NO EVENT LESS THAN ONE-HALF OF ONE PERCENT.
  S 3.  Subdivision 7 of section 2102 of the surrogate's court procedure
act is REPEALED.
  S  4.  This  act  shall take effect on the sixtieth day after it shall
have become a law and shall apply to the estates of decedents who  shall
have died on or after such date.

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