New Yorkers Can Modify “Irrevocable” TrustsMay 31, 2012 |
Long considered the American pacesetter and authority for the Law of Trusts, New York in recent decades has taken a backseat to other states who have made significant strides in the modernization of these statutes. Such improvements have forced attorney’s in New York to look elsewhere to take advantage of more consumer friendly and powerful laws in a growing minority of other states such as Delaware, South Dakota, Alaska, and Nevada. Many New Yorkers are now establishing trusts in other states as a result, and getting increased protection from creditors, more confidentiality and investment flexibility, simpler and more flexible administration, and tax savings.
New York has closed the gap with the enactment of Estates Powers & Trusts Law Section 10-6.6(b), effective last August, which allows the modification of existing irrevocable trusts. This is a natural and appropriate tool to allow families to revise trusts due to changed family circumstances, to correct errors, to take advantage of new techniques, or to save taxes. This process is called “decanting”. In legal terms, the process allows the trustee of an original trust to “appoint” or transfer trust property into another existing or newly created trust, and administer the trust under the changed language.
New York was the first state to enact a decanting law in 1992, but many families could not take advantage of it, because of restrictions that limited its use. Until the new law was signed by the Governor in August, the only other solution for fixing a deficient irrevocable trust was New York EPTL Section 7-1.9. This allows the amendment or revocation of irrevocable trusts, but only if the trust was created by a person who was still alive, and only if all the beneficiaries were competent adults. Since trusts created at a person’s death under the terms of their will are, perhaps, the most common type of trusts, (and children are often beneficiaries), the restrictions in Section 7-1.9 left many families without recourse.
Most existing, older trusts contain some language giving the trustee discretion to distribute principal of the trust (as opposed to income arising from the investment of the principal), to and among one or more family members (the beneficiaries). So long as such a power exists, the new decanting law should allow modification. Thankfully, court approval can be obtained if desired, but it is not required. Of course, the trustee must notify the interested family members of the change, and the change must be justifiable as being in the best interests of one or more of the original beneficiaries. Finally, as attorneys, we are dedicated to protecting and preserving the intentions of the original trust creator through this process, and our advice will reflect this bias when appropriate.
The attorneys in the Trust & Estates Law Practice at Rivkin Radler LLP have the experience and expertise to help you to determine if your old trust needs updating, and to decant or amend it, if desired. We have found that most of the existing trusts brought to us for review are in urgent need of this. Many of these were created to hold life insurance policies, and so dispose of substantial amounts of money. Modern techniques allow multigenerational estate tax savings and creditor protection for the trust beneficiaries, but we are decanting even recent trusts where such provisions are frequently omitted.