Meryl G. Finkelstein, Philip J. Michaels, Stephanie E. Heilborn and Brian G. Smith
February 9, 2012
As of August 17, 2011, Estates, Powers and Trusts Law ("EPTL") 10-6.6 was amended, significantly altering the decanting landscape in New York. The most significant change from the original decanting statute, enacted in July, 1992, is the trustees' ability to decant when the trustees' power to distribute principal to the beneficiaries is limited (such as by an ascertainable standard).
Under the new statute, trustees may decant whether or not the trustee has unlimited discretion to distribute principal to one or more beneficiaries, provided there is some ability of the trustee to distribute principal. When a trustee, whose principal distribution powers are not unlimited, appoints some or all of the trust property into an "appointed trust," the appointed trust must retain the same language authorizing the trustee to distribute principal as was present in the "invaded" trust.
Notably, the trustee is allowed to extend the duration of the trust, and in the extended period, the appointed trust may additionally provide that the trustee has unlimited principal invasion power. For example, consider a situation where a trustee was required to distribute principal for education to the beneficiary in the invaded trust, but was not authorized to distribute principal for any other reason, and the trust terminated upon the beneficiary reaching age 30. The appointed trust must retain the same language requiring distributions of principal for education throughout the duration of the trust, but the trustee may extend the term of the appointed trust past age 30, and in the extended portion of such trust, the trust may additionally provide unlimited principal invasion power for the trustee.
This change now provides clients with an opportunity to decant trusts (including decanting to a Delaware trust) that could not be decanted under the prior statute because the trustees' power to distribute principal was limited (such as by an ascertainable standard).
The statute also provides for other notable changes, including the following:
- The statute makes it clear that if the trustee has unlimited principal invasion power, the trustees may exclude one or more current, contingent or remainder beneficiaries from the appointed trust.
- When the trustee's power to distribute principal is limited, the current, contingent and remainder beneficiaries of the appointed trust must remain the same.
- The trustee may not alter the perpetuities period by decanting.
- No court filing is required unless the trust is (i) a testamentary trust or (ii) an inter vivos trust which has been the subject of a prior court proceeding.
Please review the statute for a comprehensive overview of all of the revisions to EPTL 10-6.6.
This article was prepared by Meryl G. Finkelstein (email@example.com or 212 318 3301), Philip J. Michaels (firstname.lastname@example.org or 212 318 3179), Stephanie E. Heilborn (email@example.com or 212 318 3207) and Brian G. Smith (firstname.lastname@example.org or 212 318 3197) of the firm's Tax Practice Group. For further information please contact any of the authors listed above.
IRS Circular 230 Disclosure
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or tax-related matter[s].
Meryl G. Finkelstein
Philip J. Michaels
Stephanie E. Heilborn
Brian G. Smith