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Estate and Elder Law

Decanting New York Trusts: EPTL 10-6.6 Significantly Revised

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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