senate Bill S3790A

Signed By Governor
2013-2014 Legislative Session

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

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Archive: Last Bill Status Via A7061 - Signed by Governor


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

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Actions

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Assembly Actions - Lowercase
Senate Actions - UPPERCASE
Nov 13, 2013 signed chap.482
Nov 01, 2013 delivered to governor
Jun 11, 2013 returned to assembly
passed senate
3rd reading cal.1016
substituted for s3790a
Jun 11, 2013 substituted by a7061
Jun 10, 2013 advanced to third reading
Jun 05, 2013 2nd report cal.
Jun 04, 2013 1st report cal.1016
Apr 29, 2013 print number 3790a
amend and recommit to judiciary
Feb 15, 2013 referred to judiciary

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Bill Amendments

Original
A (Active)
Original
A (Active)

S3790 - Bill Details

See Assembly Version of this Bill:
A7061
Law Section:
Estates, Powers and Trusts Law
Laws Affected:
Amd §§10-6.6, 10-6.7 & 10-10.7, EPT L

S3790 - Bill Texts

view summary

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

view 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.

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                    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.

S3790A (ACTIVE) - Bill Details

See Assembly Version of this Bill:
A7061
Law Section:
Estates, Powers and Trusts Law
Laws Affected:
Amd §§10-6.6, 10-6.7 & 10-10.7, EPT L

S3790A (ACTIVE) - Bill Texts

view summary

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

view sponsor memo
BILL NUMBER:S3790A

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 Surro-
gate'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 stat-
ute" - EPTL 10-6.6, enacted in 1992. Section 10-6.6(b) codifies deci-
sional 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 added 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 remain-
der beneficiaries)." (emphasis added.)

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

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 effectively rendered the interests of
all of the "successor or remainder beneficiaries" inherently susceptible
to exclusion. Such grantor would, therefore, most probably intend that a
trustee who decants to a new trust have the same power to exclude all of
such successor or remainder beneficiaries, and not (as the statute
literally permits) just all but one.

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) Statute of Limitations

A proceeding to compel an accounting by a fiduciary is governed by a
six-year statute of limitations. CPLR § 213(1): Matter of Barabash. 31
N.Y.2d 76 (1972) (statute begins to run on repudiation of the trust
relationship); (Tydings v. Greenfield, Stein & Senior, LLP, 11 N.Y.3d
195 (2008) (statute begins to run on known termination of trust
relationship by appointment of successor trustee)).

When a trustee exercises a "decanting" power under EPTL 10-6.6, invading
the corpus of an old ("invaded") trust and distributing it to a new
("appointed") trust, the question arises whether the six-year statute of
limitation begins to run from the effective date of the decanting on the
ground that there has been a "repudiation" under Barabash, or a "termi-
nation" under Tydings.

Presently, the only provisions contained in EPTL 10-6.6 with respect to
the relationship between decanting and accountings is that the failure
of a beneficiary to object to the exercise of the decanting power at the
time of the decanting does not deprive such beneficiary of the right to
compel the trustee "to account for such exercise" or prevent such bene-
ficiary "from objecting to an account or compelling a trustee to
account"(10-6.6(j)(5)). The statute does not, however, contain any
provision which would warn the beneficiary that the statute of limita-
tions on an action to compel an accounting may have begun to run.

It could be argued that any time a trustee transfers the corpus of the
"invaded trust" to an "appointed trust", the fiduciary relationship with
respect to the "invaded trust" has been "repudiated" or "terminated"
under Barabash/Tydings and, thus, that the six year statute begins to
run at that point.

There are, however, many different types of decanting. With respect to
some, it would be unreasonable to expect a beneficiary to consider that
there has been a "repudiation" or "termination". With respect to others,
such expectation would not be unreasonable. For example, if a trustee
decanted to a new trust which had the same trustee and all of the same
provisions of the old trust except for the addition of a minor adminis-
trative provision, it would be unreasonable to expect a beneficiary in
such a situation to consider such a decanting to be a repudiation or

termination of the old trust despite the fact that the corpus has been
transferred out of the old trust and into the new trust.

On the other hand, suppose the new trust (1) had a new trustee, and (2)
contained provisions substantially changing the teens of the old trust.
In such a situation it would not be unreasonable to expect the benefici-
aries to consider that the old trust relationship was ended.

In light of the many different forms that decanting can take, it would
be unwise to attempt a statutory definition as to which decantings
should begin the statute and which should not. However, it is desirable
that the decanting statute indicate to the beneficiaries that a decant-
ing may start the running of the six-year statute. As the Court of
Appeals pointed out in Tydings, the beneficiaries need not await a final
accounting but can ask for an accounting at any time.

It is therefore proposed that the statute (EPTL 10-6.6) be amended as
follows:

(1) The following sentence shall be added at the end of EPTL, 10-6.6
(j)(5):

Whether the exercise of a power under paragraph (b) or (c) begins the
running of the statute of limitations on an action to compel a trustee
to account shall be based on all the facts and circumstances of the
situation.

and

(2) The following sentence shall be added at the end of EPTL 10-6.6
(j)(6):

The instrument shall state that in certain circumstances the appointment
will begin the running of the statute of limitations that will preclude
persons interested in the invaded trust from compelling an accounting by
the trustees after the expiration of a given time.

(3)Obsolete Reference to EPTL 7-1.17

L. 2011, c. 451 added 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 require-
ment 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 convey-
ance of real property or, in lieu thereof, executed in the presence of
two witnesses who shall affix: their signatures to the trust instru-
ment." (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.

Discretionary Income Beneficiaries

L. 2011, c. 451 added 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 remain-
der beneficiaries)." (emphasis added.)

Because paragraph (s)(4) of the new 10-6.6 defines a "current benefici-
ary" 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 inter-
est of a beneficiary to whom income. but not principal, may be distrib-
uted in the discretion of the trustee of the invaded trust may be
continued in the appointed trust.

(4)Grantor Trusts

When a trustee exercises a "decanting" power under EPTL 10-6.6 by invad-
ing the corpus of an existing trust ( the "invaded trust") and distrib-
uting it to a new trust (the "appointed trust"), the statute prohibits
the addition of a "new" beneficiary in the appointed trust.

In light of this prohibition, the question arises whether the exercise
of the decanting power which converts a trust from a non-grantor trust
(where the income tax is payable by either the trust or the benefici-
aries) to a grantor trust (where the income tax is payable by the gran-
tor) constitutes the addition of the grantor as a "new beneficiary." The
reason this issue arises is that if a non-grantor trust becomes a gran-
tor trust by virtue of a decanting, then under EPTL 7-1.11, unless
negated by the decanting instrument, the grantor may receive corpus in
the trustee's discretion to reimburse the grantor for income taxes on
the trust's income (allocable to principal). Literally, therefore, it
could be argued that the grantor, as the permissible recipient of trust
corpus, is now a new beneficiary -which would make the decanting inval-
id, under EPTL 10-6.6.

However, despite the fact that the grantor literally could be seen as
the permissible recipient of trust corpus in such a situation, the gran-
tor should not be considered a new beneficiary for the purposes of EPTL
10-6.6, for the following reasons:

First, it seems clear that the legislation enacted in 2005 has already
spoken in principle to this policy. EPTL 7-3.1(a) provides that a
"disposition in trust for the use of the creator is void as against
existing or subsequent creditors". Because the IRS in Rev.Rul.2006-64

indicated that it could treat a grantor as retaining a beneficial inter-
est for estate tax purposes if EPTL 7-1.11 gave rise to a right in cred-
itors to reach the trust corpus, in 2005 EPTL 7-3.1 was amended to add a
new paragraph (d) to provide:

"(d) A disposition in trust shall not be considered to be for the use of
the creator under paragraph (a) of this section by reason of the trus-
tee's authority to pay trust principal to the creator pursuant to
section 7-1.11 of this article. Nor shall a disposition in trust be
considered to be for the use of the creator under paragraph (a) of this
section where the trustee is authorized under the trust instrument or
any other provision of law to pay or reimburse the creator for any tax
on trust income or trust principal that is payable by the creator under
the law imposing such tax or to pay any such tax directly to the taxing
authorities. No creditor of a trust creator shall be entitled to reach
any trust property based on the discretionary powers described in this
paragraph."

This amendment made it clear that even though a trustee has the
discretion to pay corpus to a Grantor to reimburse the grantor for
income taxes on trust income, such a payment was not to be considered a
beneficial interest. The same policy which engendered the 2005 amendment
to 7-3.1 supports the amendment of 10-6.6 to clarify that the possibil-
ity of a corpus reimbursement under 7-1.11 does not, of itself, make the
grantor a "new" beneficiary.

Secondly, economic analysis points in the same direction. To illustrate:

Suppose that when the trust is a non-grantor trust, there is realized a
capital gain. In such a case, the tax is payable by the trust or the
beneficiaries. If, on the other hand, the trust was a grantor trust, and
the trustee reimbursed the grantor for the taxes, the trust, the benefi-
ciaries and the grantor (as well as the government) end up in essential-
ly the same position as if the trust was not a grantor trust. In both
cases the essence of the situation is that the taxes on the trust are
paid to the government out of the trust property, and the grantor gains
nothing.

Therefore, it is proposed that EPTL 10-6.6 be amended to track the 2005
amendment to EPTL 7-3.1, by adding a new subparagraph (10) to paragraph
(s) to read as follows:

(10) The creator shall not be considered to be a beneficiary of an
invaded or appointed trust by reason of the trustee's authority to pay
trust principal to the creator pursuant to section 7-1.11 of this arti-
cle or by reason of the trustee's authority under the trust instrument
or any other provision of law to pay or reimburse the creator for any
tax on trust income or trust principal that is payable by the creator
under the law imposing such tax or to pay any such tax directly to the
taxing authorities.

(5)Requirement of Majority or Unanimity in the Decanting Decision

Although the new statute is silent on the matter, the legislative histo-
ry of the decanting statute indicates that a decision to decant requires
only a majority of trustees (i.e., that the majority rule provisions of
10-10.7 should apply). However, a technical correction to the statute is
necessary because 10-6.6(d) states that the exercise of the decanting
power "shall be considered the exercise of a special power of appoint-
ment as defined in section 10-3.2", which could be interpreted to invoke
the unanimity requirement provisions of 10-6.7, which governs powers of
appointment.

EPTL 10-6.7 and 10-10.7 would be revised to add the following language
to make clear that 10-10.7 or the terms of the dispositive instrument
will govern on the issue of whether unanimity or majority decision is
required when there are more than two trustees:

10-6.7

Whenever a power of appointment, other than a power in a trustee to
invade trust principal under section 10-6.6 of this article or under the
terms of the dispositive instrument, is created in two or more
donees,...

10-10.7

Unless contrary to the express provisions of an instrument affecting the
disposition of property, a joint power other than a power of appointment
but including a power in a trustee to invade trust principal under
section 10-6.6 of this article or under the terms of the dispositive
instrument, conferred...

Also since 10-6.6 is silent on the issue, a cross-reference will be
added by a new paragraph (t), as follows:

(t) Cross-reference. For the exercise of the power under paragraph(b)
and (c) of this section where there are multiple trustees, see 10-6.7
and 10-10.7 of this article.

This act shall take effect immediately.

2012 Legislative History: OCA 2012-101
Senate 7630 (Sen. Bonacic) (Judiciary)
2013 Legislative History: OCA 2013-6
Senate 3790 (Sen. Bonacic) (Judiciary)

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

                                 3790--A

                       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 -- committee discharged, bill
  amended, ordered reprinted as amended and recommitted to said  commit-
  tee

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. Subparagraphs 5 and 6 of paragraph (j) 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:
  (5) The receipt of a copy of the instrument exercising the power shall
not affect the right of any person interested in the  invaded  trust  to
compel  the  authorized  trustee who exercised the power [of appointment
pursuant to] UNDER paragraph (b) or (c) of this section to  account  for
such  exercise  and  shall not foreclose any such interested person from
objecting to an account or compelling a trustee to account.  WHETHER THE

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD08085-02-3

S. 3790--A                          2

EXERCISE OF A POWER UNDER PARAGRAPH (B) OR (C) OF  THIS  SECTION  BEGINS
THE RUNNING OF THE STATUTE OF LIMITATIONS ON AN ACTION TO COMPEL A TRUS-
TEE  TO ACCOUNT SHALL BE BASED ON ALL THE FACTS AND CIRCUMSTANCES OF THE
SITUATION.
  (6)  A  copy of the instrument exercising the power shall be kept with
the records of the invaded trust and the original shall be filed in  the
court  having jurisdiction over the invaded trust. Where a trustee of an
inter vivos trust exercises the power and the trust  has  not  been  the
subject of a proceeding in the surrogate's court, no filing is required.
THE INSTRUMENT SHALL STATE THAT IN CERTAIN CIRCUMSTANCES THE APPOINTMENT
WILL  BEGIN THE RUNNING OF THE STATUTE OF LIMITATIONS THAT WILL PRECLUDE
PERSONS INTERESTED IN THE INVADED TRUST FROM COMPELLING AN ACCOUNTING BY
THE TRUSTEES AFTER THE EXPIRATION OF A GIVEN TIME.
  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:
  (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. Paragraph (s) of section 10-6.6 of the estates, powers and trusts
law is amended by adding a new subparagraph 10 to read as follows:
  (10)  THE  CREATOR  SHALL  NOT BE CONSIDERED TO BE A BENEFICIARY OF AN
INVADED OR APPOINTED TRUST BY REASON OF THE TRUSTEE'S AUTHORITY  TO  PAY
TRUST PRINCIPAL TO THE CREATOR PURSUANT TO SECTION 7-1.1 OF THIS CHAPTER
OR  BY  REASON  OF THE TRUSTEE'S AUTHORITY UNDER THE TRUST INSTRUMENT OR
ANY OTHER PROVISION OF LAW TO PAY OR REIMBURSE THE CREATOR FOR  ANY  TAX
ON  TRUST INCOME OR TRUST PRINCIPAL THAT IS PAYABLE BY THE CREATOR UNDER
THE LAW IMPOSING SUCH TAX OR TO PAY ANY SUCH TAX DIRECTLY TO THE  TAXING
AUTHORITIES.
  S  5.  Section 10-6.6 of the estates, powers and trusts law is amended
by adding a new paragraph (t) to read as follows:
  (T) CROSS-REFERENCE. FOR THE EXERCISE OF THE POWER UNDER PARAGRAPH (B)
OR (C) OF THIS SECTION WHERE THERE ARE MULTIPLE TRUSTEES,  SEE  SECTIONS
10-6.7 AND 10-10.7 OF THIS ARTICLE.
  S  6. Section 10-6.7 of the estates, powers and trusts law, as amended
by chapter 686 of the laws of 1967, is amended to read as follows:
S 10-6.7 Exercise by all donees; exceptions
  Whenever a power of appointment, OTHER THAN A POWER IN  A  TRUSTEE  TO
INVADE TRUST PRINCIPAL UNDER SECTION 10-6.6 OF THIS ARTICLE OR UNDER THE
TERMS  OF  THE DISPOSITIVE INSTRUMENT, is created in two or more donees,
all must unite in its exercise,  unless  the  instrument  creating  such
power  provides otherwise.  But, if before its execution, one or more of
such donees dies or becomes incompetent, such power may be exercised  by

S. 3790--A                          3

the  survivor or the competent donee, unless such exercise is explicitly
barred by the terms of the instrument creating such power.
  S 7. Section 10-10.7 of the estates, powers and trusts law, as amended
by chapter 904 of the laws of 1973, is amended to read as follows:
S 10-10.7 Exercise  of powers by multiple fiduciaries; joint and several
            powers
  Unless contrary to the express provisions of an  instrument  affecting
the  disposition  of  property,  a  joint  power  other  than a power of
appointment BUT INCLUDING A POWER IN A TRUSTEE TO INVADE TRUST PRINCIPAL
UNDER SECTION 10-6.6 OF THIS ARTICLE OR UNDER THE TERMS OF THE  DISPOSI-
TIVE  INSTRUMENT, conferred upon three or more fiduciaries, as that term
is defined in 11-1.1, by the terms of such instrument, or by statute, or
arising by operation of law, may be exercised  by  a  majority  of  such
fiduciaries,  or by a majority of survivor fiduciaries, or by the survi-
vor fiduciary.  Such a power conferred upon or  surviving  to  two  such
fiduciaries  may be exercised jointly by both such fiduciaries or by the
survivor fiduciary, unless contrary to the express terms of the  instru-
ment creating the power. A fiduciary who fails to act through absence or
disability,  or  a  dissenting  fiduciary  who joins in carrying out the
decision of a majority of the fiduciaries  if  his  OR  HER  dissent  is
expressed promptly in writing to his OR HER co-fiduciaries, shall not be
liable  for  the  consequences  of  any majority decision, provided that
liability for failure to join in administering the estate or trust or to
prevent a breach of the trust may not thus be avoided.   A power  vested
in  one  or  more  persons  under  a  trust  of real property created in
connection with the salvaging of mortgage participation certificates may
be executed by one or more of such persons as provided  in  such  trust.
This  section  shall  not  affect  the  right  of any one of two or more
personal representatives of a decedent to exercise a several power.
  S 8. This act shall take effect immediately.

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