A recent amendment to New York law gives more Trustees the ability to fix or otherwise change the terms of a trust. Specifically, Governor Andrew M. Cuomo recently signed a bill amending Section 10-6.6(b) of the Estates, Powers and Trusts Law, commonly referred to as New York’s “decanting” statute. In this context, decanting is the process of a Trustee distributing trust property from one trust to another. Decanting is oftentimes used to change the terms governing an irrevocable trust by distributing trust property from a “broken” or antiquated trust to a newly-created trust with new and improved terms.
New York was the first state to enact a decanting statute. One main goal of the recent amendment of the law was to increase the flexibility of the law and bring it more in line with the law of the other states that now have decanting legislation.
Of course, there are many reasons that a fiduciary of a trust and the family members might want to change the terms of the trust, including correcting drafting errors and making the trust more tax efficient for the beneficiaries.
Under prior law, a Trustee could only decant a trust if the Trustee had “absolute” discretion to distribute the principal of the trust to the beneficiaries. For example, if a Trustee’s discretion to distribute principal was limited to the ability to distribute principal for the health, education, maintenance, and/or support of the beneficiaries, the Trustee’s discretion was not absolute and the Trustee could not decant the trust. Under the new law, even if a Trustee’s discretion to distribute principal is limited, the Trustee may decant the trust. This change in the law provides an opportunity to Trustees with limited discretion to change the terms governing the trust because of a drafting error, changed circumstances, etc.
It is important to note that there are certain restrictions imposed by the new law when decanting a trust. For instance, there are certain requirements regarding the identity of the beneficiaries of the new trust and the level of discretion of the Trustees of the new trust. When decanting a trust, it is imperative that the Trustees comply with all applicable requirements and make sure that their proposed action does not violate any restrictions imposed.
This new law may provide a solution for Trustees with limited discretion who find themselves administering an antiquated or “broken” trust or dealing with changed and unanticipated circumstances