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New York's decanting statute, EPTL 10-6.6, was significantly amended by the 2011
Legislative Session. As a result, the trustee of a New York irrevocable trust
has a much greater opportunity to decant assets from an existing trust to
another trust. In this Analysis, Linda Hirschson, chair of Greenberg Traurig's
New York trusts and estates practice, and Shifra Herzberg detail these changes
and discuss the tax implications. They write:
C. Procedure; Notice
The new statute is considerably more explicit as to the procedure for
effecting the decanting. The exercise of the power to decant must be by a
written instrument that is signed, dated and acknowledged by the trustee
exercising the power. For the purpose of creating the appointed trust, the
trust will be deemed signed by the settlor upon being signed by the trustee.
The instrument effectuating the decanting must explicitly state whether the
decanting comprises some or all of the invaded trust's assets. If the decanting
is over a portion of the trust assets, the instrument must state the
approximate percentage of the value of the principal over which the decanting
is being exercised. As was true under the old statute, the trustee may, but is
not required to, seek court approval for the exercise of the power.
A trustee exercising the power to decant must give notice of the
decanting by providing a copy of (i) the decanting instrument, (ii) the invaded
trust, and (iii) the appointed trust to (a) all persons interested in the
invaded trust, (b) all persons interested in the appointed trust, (c) the
settlor, if living, and (d) any person having a right in the invaded trust to
remove or replace the trustee exercising the power. The decanting is effective
30 days after service of the requisite notice, unless the parties entitled to
notice consent to an earlier date. An interested person's receipt of notice
does not affect such person's right after that time to compel the trustee to
account specifically for the decision to decant, or to file objections to the
trustee's account. In that regard, Memo A08297 indicates that the receipt of
notice is not intended to toll the statute of limitations on any action
compelling the trustee to account.
All persons interested in the invaded trust are granted automatic
standing prior to the date the decanting becomes effective to object to the
decanting and may serve the trustee with written notice of objection prior to
the effective date (which notice, however, does not appear to affect the effective
date of the decanting). Note that the settlor and persons entitled to remove or
replace the trustee exercising the power are entitled to notice of the
decanting, but are not necessarily persons who can file objections to the
decanting. Query what purpose the notice of objection serves if further action
would be required to prevent the decanting and the statute explicitly provides
that failure to object does not constitute consent. Query further whether the
failure of a beneficiary to exercise the right to object to the decanting under
the statute is a taxable gift based on the lapse of the legal right.
The instrument effectuating the decanting (but not the invaded or
appointed trust agreements) must be filed with the court having jurisdiction
over the invaded trust. This filing requirement does not apply, however, if the
invaded trust is a lifetime trust that has never been the subject of a proceeding
in the Surrogate's Court. In addition, a copy of the decanting instrument is
supposed to be kept with the trust records.
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