On August, 17, 2011, New York Governor Andrew Cuomo signed into law Bill A8297 which expands the State's decanting statute (Estates, Powers and Trust Law §10-6.6). Under the prior version of the statute, the assets of an irrevocable trust could be appointed (or "decanted") into a new irrevocable trust with different terms. The ability to appoint the assets of an old trust into a new trust is a useful tool that has long provided flexibility in trust administration by allowing trustees to deal with changed circumstances despite the irrevocability of the trust instrument. The new law applies to any trust governed by New York law and any trust that has a New York trustee (so long as a majority of the trustees select New York as the location for the primary administration of the trust).
Some of the most significant provisions of the new law are as follows:
- The trustee can now decant the principal of an existing trust to a new trust even though the trustee lacks absolute discretion to invade trust principal. As long as the trustee has the power to invade principal for any purpose, the trustee is authorized to decant to a new trust. Depending on the trustee's level of discretion regarding principal distributions in the existing trust agreement, the current and remainder beneficiaries of the new trust may or may not need to be the same as those of the old trust.
- If a trustee has unlimited discretion to invade principal under the old trust, the trustee may decant to a new trust that grants a power of appointment to the beneficiary as long as the beneficiary who is granted the power was eligible to receive property outright under the old trust. The provision of a broad power of appointment to the beneficiary can thus be used to expand the class of beneficiaries provided for under the old trust and may allow for the postponement of the generation-skipping transfer tax.
- The new appointed trust can have a term that is longer than the term of old trust, including a term measured by the lifetime of a current beneficiary.
- A trustee must exercise a fiduciary duty when deciding whether to decant. The use of the decanting power must be in the best interests of one or more proper objects of the exercise of the power and as a prudent person would exercise the power under the prevailing circumstances. If there is substantial evidence of the creator's contrary intent, and it cannot be established that the creator would be likely to have changed his intent under the circumstances existing at the time of the exercise of the power, then the trustee should not decant.
- The trustee is required to exercise the power in a writing, signed and acknowledged, and provided to all persons interested in the old trust. Notice also must be provided to the creator (if living) and to any individual with power to remove the trustee of the old trust. For inter-vivos trusts, the new law eliminates the existing requirement that the trustee file the instrument exercising the power with the court (as long as the trust has not been the subject of a previous court proceeding).