Senate Bill S7182

                                BILL NUMBER:S7182

TITLE OF BILL:
An act
to amend the estates, powers and trusts law, in relation to the prudent
investor act

PURPOSE:
To clarify the effect that a trustee's adjustment under EPTL
U-2.3(b)(5) of trust property from the trust's principal account to
its income account (or vice-versa) has on the calculation of trustee
commissions.

SUMMARY OF PROVISIONS:
The bill amends EPTL 11-2.3(b)(5) to provide that a trustee's
exercise of the power to adjust between principal and income of a
trust, whether such adjustment is made from income to principal or
from principal to income, constitutes a re-characterization of the
transferred asset for purposes of calculating commissions under SCPA
Article 23.

JUSTIFICATION:
The trustees and beneficiaries lack statutory direction regarding the
proper calculation of trustee commissions when a trustee exercises a
discretionary power to adjust under EPTL 11-2.3(b)(5) between
principal and income to enable the trustee to make appropriate
              

present and future distributions to trust beneficiaries. Depending on
the type of a trust, trustee calculates commissions by reference to
either the trust's income or principal. Thus, any adjustment between
principal and income during a given year potentially affects the
calculation of trustee commissions. For example, commissions for a
non-charitable trust generally are based on the trust's principal. To
the extent that, in a given year, a trustee makes an adjustment from
principal to income, the value of the trust's principal account will
be reduced. Consequently, some trustees treat such adjustment as a
recharacterization of the adjusted amount (here, from principal to
income) to reduce trustee commissions.
However, other trustees calculate commissions by ignoring the reality
of such adjustment, resulting in an artificially high principal
account to increase commissions. This inconsistent treatment can
become particularly problematic when two co-trustees disagree on the
proper calculation of their commissions. The bill eliminates such
confusion and potential for conflict. It clarifies that the
transferred amount is re-characterized as either income or principal,
depending on the adjustment, and should be reflected as such in the
calculation of trustee commissions. This result is consistent with
(i) the Principal and Income Act, (ii) the Prudent Investor Act, and
(iii) the 2008 technical corrections to the Prudent Investor Act.

LEGISLATIVE HISTORY:
New bill.

FISCAL IMPACT:
None.

EFFECTIVE DATE:
This act shall take effect immediately.