In 1992, New York became the first state to enact a statute that expressly permitted a trustee to move assets from one trust to another trust. These trust to trust transfers – known as “decanting” – provides flexibility that is often desired to address changing circumstances and in correcting errors that might otherwise defeat the trustmaker’s intent.
Since 1992, however, many states have enacted decanting statutes that provide trustees with far greater flexibility than has been possible under New York’s decanting statute. In response to criticism from trustees and attorneys that New York’s law was too restrictive, New York recently amended the state’s decanting statute to provide a much-needed expansion of a trustee’s decanting authority.
The statute, which was signed into law by Governor Cuomo on August 17, 2011, applies to all existing trusts as well as trusts created after enactment of the legislation. The law includes the following significant changes from the prior decanting statute:
- Previously, a trustee could move assets to a new trust only if the original trust document provided the trustee with the “absolute discretion” to invade trust principal. Under the amended law, however, a trustee may transfer principal to a new trust so long as the principal invasion powers in the new trust are at least equivalent to the invasion powers in the original trust. For example, many trusts permit principal invasions for the beneficiaries’ “health, education, maintenance and support” (commonly referred to as the “HEMS” standards). Under the prior “absolute discretion” standard, a trustee had no authority to transfer assets from a trust utilizing the HEMS standards to another trust, even if the new trust provided for HEMS distributions. Under the revised law, a trustee may transfer the trust principal from one HEMS trust to another trust also following a HEMS standard.
- If in fact the existing trust provides the trustee with “absolute discretion” to make distributions to one or more trust beneficiaries to the exclusion of other trust beneficiaries, then the trustee may transfer the principal from the original trust to a new trust that may include any one or more of the beneficiaries of the original trust; the new trust need not include all the beneficiaries from the original trust. If, however, the trustee in the original trust does not have unlimited discretion as to distributions of trust principal, then the beneficiaries of the new trust must be the same as the beneficiaries of the original trust.
- Trust assets may be decanted to a new trust that has a longer term than that of the original trust, which provides expanded opportunities for multi-generational estate planning.
- The new trust can be established by the trustmaker of the original trust or by the trustee of the original trust.
- For a “living trust,” there is no longer a requirement to file the decanting document with the Surrogate’s Court, unless proceedings involving the original trust have previously been commenced with the Court.