N.Y. EPT Law § 11-2.4 — New York Code / Act EPT / Article 11 / Part 2 / Section 11-2.4
Optional unitrust provision
Status: in_force

§ 11-2.4 Optional unitrust provision\n  (a) Unless the terms of the trust provide otherwise, the net income of\nany trust to which this section applies shall mean the unitrust amount\nas determined hereunder.\n  (b) Unitrust amount.\n  (1) For the first year of the trust as a unitrust, including a short\nyear if applicable, the "unitrust amount" for the year shall mean an\namount equal to four percent of the net fair market values of the assets\nheld in the trust at the beginning of the first business day of the\ncurrent valuation year.\n  (2) For the second year of a trust as a unitrust, including a first\nshort year if applicable, the "unitrust amount" for the year shall mean\nan amount equal to four percent multiplied by a fraction, the numerator\nof which shall be the sum of (A) the net fair market values of the\nassets held in the trust at the beginning of the first business day of\nthe current valuation year and (B) the net fair market values of the\nassets held in the trust at the beginning of the first business day of\nthe prior valuation year, and the denominator of which shall be two.\n  (3) Commencing with the third year of a trust as a unitrust, including\na first short year if applicable, the "unitrust amount" for a current\nvaluation year of the trust shall mean an amount equal to four percent\nmultiplied by a fraction, the numerator of which shall be the sum of (A)\nthe net fair market values of the assets held in the trust at the\nbeginning of the first business day of the current valuation year and\n(B) the net fair market values of the assets held in the trust at the\nbeginning of the first business day of each prior valuation year, and\nthe denominator of which shall be three.\n  (4) The unitrust amount for the current valuation year as computed in\naccordance with subparagraph (b)(1), (2) or (3), as adjusted in\naccordance with this subparagraph, shall be proportionately reduced for\nany corpus distributions to beneficiaries mandated by the terms of the\ntrust, in whole or in part (other than distributions of the unitrust\namount), and shall be proportionately increased for the receipt, other\nthan a receipt that represents a return on investment, of any additional\ncorpus into the trust within a current valuation year.\n  (5) For purposes of clause (b)(2)(B), the net fair market values of\nthe assets held in the trust at the beginning of the first business day\nof a prior valuation year shall be adjusted to reflect any distributions\nto beneficiaries mandated by the terms of the trust, in whole or in part\n(other than distributions of the unitrust amount), or receipts (other\nthan receipts that represent a return on investment) of any additional\nprincipal into the trust, which have occurred after the first day of\nsuch prior valuation year and by the close of the first day of the\ncurrent valuation year, as if the distribution or receipt had occurred\non the first day of such prior valuation year.\n  (6) In the case of a short year, the trustee shall prorate the\nunitrust amount on a daily basis. The trustee shall prorate any\nadjustment under subparagraph (b)(4) on a daily basis.\n  (7) In the case where the unitrust amount has been incorrectly\ndetermined either in a current valuation year or in a prior valuation\nyear, then within a reasonable time (not to exceed eighteen months)\nafter the error was made, the trustee shall make any non-material\nadjustments and pay to the underpaid beneficiary (in case of\nnon-material underpayment) or shall recover from the overpaid\nbeneficiary (in case of non-material overpayment) an amount equal to the\ndifference between the unitrust amount properly payable and any amount\nactually paid for any completed valuation year of the trust and shall\nproperly adjust the unitrust amount for the current valuation year if\naffected non-materially by prior incorrect determination of a unitrust\namount. A material correction shall require approval of the surrogate if\napplied for by the trustee or an interested party.\n  (c) Other definitions and special rules. For purposes of this section:\n  (1) A "current beneficiary" is a person to whom the income (within the\nmeaning of this section or otherwise) of the trust is payable, or in the\ndiscretion of the trustee may be paid, in whole or in part, during the\ncurrent valuation year.\n  (2) The term "current valuation year" shall mean the year of the trust\nfor which the unitrust amount is being determined.\n  (3) The term "prior valuation year" shall mean each of the two years\nof the trust immediately preceding the current valuation year.\n  (4) The term "year" means a calendar year. A "short year" constitutes\na portion of a calendar year that begins when the interest of the\ncurrent beneficiary or class of current beneficiaries begins or ends\nwhen the interest of the current beneficiary or class of current\nbeneficiaries ends.\n  (5) "Net fair market value" shall mean the fair market value of each\nasset comprising the trust reduced by the fair market value of any\noutstanding interest-bearing obligations of the trust, whether allocable\nto a specific asset or otherwise. Fair market value of an asset may be\ndetermined by any appropriate technique adopted and consistently applied\nby the trustee, and such techniques may include, but are not limited to,\nuse of the asset's value at the close of business on the previous\nbusiness day, and notwithstanding that such day may be in a prior year\nor be a day on which the trust was not subject to this section.\n  (6) In determining the sum of the net fair market values of the assets\nheld in the trust for purposes of subparagraphs (b)(1), (2) and (3), and\nin determining whether an adjustment is required in accordance with\nsubparagraph (b)(4) or (5), there shall not be taken into account the\nvalue:\n  (A) of any residential property or any tangible personal property\nthat, as of the beginning of the first business day of the current\nvaluation year, one or more current beneficiaries of the trust have or\nhad the right to occupy, or have or had the right to possess or control\n(other than in his or her capacity as a trustee of the trust), and\ninstead the right of occupancy or the right to possession or control\nshall be deemed to be the unitrust amount with respect to such\nresidential property or such tangible personal property; provided,\nhowever, that the unitrust amount shall be adjusted in accordance with\nsubparagraphs (b) (4) and (5) for partial distributions from or receipt\ninto the trust of such residential property or tangible personal\nproperty during the current valuation year.\n  (B) of any asset specifically given to a beneficiary and the return on\ninvestment on such property, which return on investment shall be\ndistributable to such beneficiary.\n  (C) of any assets while held in a testator's estate.\n  (D) of (i) amounts paid or distributed to the trust by a decedent's\nestate, another trust or another payor, as income pursuant to article\n11-A attributable to an asset or amount due to the trust for a period\nprior to its payment or distribution to the trust, unless and except to\nthe extent that the unitrust trustee, having the power to accumulate\nincome, shall have determined to accumulate and add such income to\nprincipal, and such unaccumulated net income shall be distributable to\nthe beneficiaries of the trust; or (ii) any amount paid or distributed\nby such decedent's estate, other trust or other payor, directly to\nbeneficiaries of the trust in satisfaction of their ultimate entitlement\nto such income.\n  (7) In determining the net fair market value of each asset held in the\ntrust pursuant to subparagraphs (b)(1), (2) and (3), the trustee shall,\nnot less often than annually, determine the fair market value of each\nasset of the trust that consists primarily of real property or other\nproperty that is not traded on a regular basis in an active market, and\nall such determinations shall, if made reasonably and in good faith, be\nconclusive on all persons interested in the trust. Such determination\nshall be conclusively presumed to have been made reasonably and in good\nfaith unless proven otherwise in a proceeding commenced by or on behalf\nof a person interested in the trust within three years after the close\nof the year in which the determination is made.\n  (8) The term "trustee" does not include a personal representative.\n  (9) The term "trust" does not include an estate.\n  (d) Commencement of current beneficiary's interest.\n  (1) The interest of a current beneficiary or class of current\nbeneficiaries in the unitrust amount begins on the date on which this\nsection becomes applicable to the trust pursuant to clause (e)(4)(A), or\nif later the date assets first become subject to the trust. An asset\nbecomes subject to a trust:\n  (A) on the date it is transferred to the trust in the case of an asset\nthat is transferred to a trust during the transferor's life;\n  (B) on the date it is transferred to the trust in the case of an asset\nthat is transferred to a testamentary trust created under a will;\n  (C) on the date of an individual's death in the case of an asset that\nis transferred to a trust by a third party by reason of the individual's\ndeath;\n  (D) on the date of an individual's death in the case of a trust that\nowns life insurance on the individual's life; or\n  (E) on the date a revocable trust becomes irrevocable in the case of\nassets then held in the trust.\n  (2) A trust which continues in existence for the benefit of one or\nmore new current beneficiaries or class of current beneficiaries upon\nthe termination of the interests of all prior current beneficiaries or\nclasses of prior current beneficiaries, shall be deemed to be a new\ntrust, and, for purposes of clauses (e)(1)(B) and (e)(4)(A) and\nsubparagraph (d)(1), assets shall be deemed to first become subject to\nthe trust on the date of the termination of such interests.\n  (e) Trusts to which section applies.\n  (1) This section shall apply to any trust if:\n  (A) the governing instrument provides that this section shall apply to\nsuch trust, or\n  (B) (i) with respect to a trust in existence prior to January first,\ntwo thousand two, on or before December thirty-first, two thousand five,\nthe trustee, with the consent by or on behalf of all persons interested\nin the trust or in his, her or its discretion, elects to have this\nsection apply to such trust, or\n  (ii) with respect to a trust not in existence prior to January first,\ntwo thousand two, on or before the last day of the second full year of\nthe trust beginning after assets first become subject to the trust, the\ntrustee, with the consent by or on behalf of all persons interested in\nthe trust or in his, her or its discretion, elects to have this section\napply to such trust.\n  (iii) An election in accordance with this subparagraph shall be made\nby an instrument, executed and acknowledged, and delivered to the\ncreator of the trust, if he or she is then living, to all persons\ninterested in the trust or to their representatives and to the court, if\nany, having jurisdiction over the trust.\n  (2) (A) The court having jurisdiction of a trust to which this section\notherwise would apply by reason of subparagraph (e)(1) or clause\n(e)(2)(B), upon the petition of the trustee or any beneficiary of the\ntrust and upon notice to all persons interested in the trust, may direct\nthat article 11-A shall apply to the trust and that this section shall\nnot apply to the trust; and\n  (B) At any time, the court having jurisdiction of a trust to which\nthis section otherwise would not apply, upon the petition of the trustee\nor any beneficiary of the trust and upon notice to all persons\ninterested in the trust, may direct that this section shall apply to the\ntrust and that article 11-A shall not apply to the trust.\n  (3) For the purposes of this section, the phrase "all persons\ninterested in the trust" shall mean all the persons upon whom service of\nprocess would be required in a proceeding for the judicial settlement of\nthe account of the trustee, taking into account section three hundred\nfifteen of the surrogate's court procedure act. Where a person\ninterested in the trust has the same interest as a person under a\ndisability, it shall not be necessary to obtain the consent of or notify\nthe person under a disability.\n  (4) (A) This section shall apply to a trust with respect to which\nthere is:\n  (i) a direction in the governing instrument in accordance with clause\n(e)(1)(A), as of the date provided for in such governing instrument, or\nif there is no provision then as of the day on which assets first become\nsubject to the trust;\n  (ii) an election in accordance with clause (e)(1)(B), as of the date\nspecified in the election, which may be any day within the year in which\nthe election is made or the first day of the year commencing after the\nelection is made; or a\n  (iii) court decision rendered in accordance with clause (e)(2)(B) as\nof the date specified by the court in its decision;\n  Provided, however, that if later than any date set by this clause,\nthis section shall not apply to the trust until January first, two\nthousand two.\n  (B) If this section applied to a trust with respect to which a court\ndecision is rendered in accordance with clause (e)(2)(A), this section\nshall cease to apply to such trust and article 11-A shall apply to the\ntrust as of the first day of the year beginning after the decision of\nthe court becomes final, unless the court in its decision provides\notherwise.\n  (5) In the determination of whether article 11-A or this section\nshould apply to a trust:\n  (A) All of the factors relevant to the trust and its beneficiaries,\nincluding the following factors to the extent they are relevant, shall\nbe considered:\n  (i) the nature, purpose, and expected duration of the trust;\n  (ii) the intent of the creator of the trust;\n  (iii) the identity and circumstances of the beneficiaries;\n  (iv) the needs for liquidity, regularity of payment, and preservation\nand appreciation of capital;\n  (v) the assets held in the trust; the extent to which they consist of\nfinancial assets, interests in closely held enterprises, tangible and\nintangible personal property, or real property; the extent to which an\nasset is used by a beneficiary; and whether an asset was purchased by\nthe trustee or received from the creator of the trust.\n  (B) In any proceeding brought pursuant to subparagraph (e)(2), there\nshall be a rebuttable presumption that this section should apply to the\ntrust.\n  (f) Trusts to which this section shall not apply. This section shall\nnot apply to a trust if:\n  (1) the governing instrument provides in substance that this section\nshall not apply;\n  (2) the trust is a pooled income fund described in section 642(c)(5)\nof the United States internal revenue code of 1986;\n  (3) the trust is a charitable remainder annuity trust or a charitable\nremainder unitrust described in section 664 of the United States\ninternal revenue code of 1986; or\n  (4) the trust is an irrevocable lifetime trust which provides for\nincome to be paid for the life of a grantor, and possessing or\nexercising the power to make this section apply would cause any public\nbenefit program to consider additional amounts of principal or income to\nbe an available resource or available income, and the principal or\nincome or both would in each case not be considered an available\nresource or income, if there was no power to make this section apply,\nif, based upon the facts and circumstances surrounding the formation of\nsuch trust, it can reasonably be concluded that the primary purpose for\nthe establishment of the trust was to ensure that the trust principal\nwould not be treated as an available resource for the purposes of a\ngovernmental assistance program.\n