BILL NUMBER:  S7710

 TITLE OF BILL :

An act to amend the estates, powers and trusts law, in relation to a
trustee's power to adjust under the prudent investor act

 PURPOSE OF BILL :

The purpose of the bill is to clarify the effective date of a
trustee's power to adjust from income to principal or from principal
to income.

 SUMMARY OF PROVISIONS OF BILL :

Subparagraph 5 of paragraph (b) of section 11-2.3 of the Estates,
Powers and Trusts Law (the EPTL) is amended by adding a new clause (G)
stating that the effective date of a trustee's exercise of the power
to adjust is the date that such transfer is made.

 JUSTIFICATION :

The Prudent Investor Act ("PIA"), codified in EPTL 11-2.3, requires a
trustee "to pursue an overall strategy to enable the trustee to make
appropriate present and future distributions to or for the benefit of
the beneficiaries under the governing instrument, in accordance with
              

risk and return objectives reasonably suited to the whole portfolio."
(EPTL Section 112.3(b)(3)). The prudent investor standard specifically
authorizes a trustee "to adjust between principal and income to the
extent the trustee considers advisable to enable the trustee to make
present and future distributions in accordance with (EPTL Section
11-2.3(b)(3))...if the trustee determines...that such an adjustment
would be fair and reasonable to all the beneficiaries" (EPTL Section
11-2.3 (b)(5)).

However, it is unclear under current law whether and when adjusted
amounts should be re-characterized for purposes of calculating
trustee's commissions. This uncertainty creates the potential for
conflict between co-trustees of a trust as to the method for computing
commissions on re-characterized amounts.

Effectuating a re-characterization at the time such adjustment is made
is consistent with the precepts of the PIA and serves to clarify the
calculation of trustee's commissions in situations where such
commissions are based on the amount of the trust's income or the
trust's principal. The proposed amendment will result in a consistency
of practice, eliminating uncertainty under current law.

 LEGISLATIVE HISTORY :

New bill, 2016

 FISCAL IMPLICATIONS FOR STATE AND LOCAL GOVERNMENTS :

None.

 EFFECTIVE DATE :
This bill shall take effect on the first of January following
enactment.