NY Est Pow & Trusts L § 11-2.4 (2021)
2021 New York Laws EPT - Estates, Powers and Trusts Article 11 - Fiduciary: Powers, Duties and Limitations; Actions by or Against in Representative or Individual Capacities Part 2 - Investments by Fiduciaries: Powers and Duties Relating Thereto 11-2.4 - Optional Unitrust Provision

§ 11-2.4 Optional unitrust provision  (a) Unless the terms of the trust provide otherwise, the net income of any  trust  to which this section applies shall mean the unitrust amount as determined hereunder.  (b) Unitrust amount.  (1) For the first year of the trust as a unitrust, including  a  short year  if  applicable,  the  "unitrust amount" for the year shall mean an amount equal to four percent of the net fair market values of the assets held in the trust at the beginning of the  first  business  day  of  the current valuation year.  (2)  For  the  second year of a trust as a unitrust, including a first short year if applicable, the "unitrust amount" for the year shall  mean an  amount equal to four percent multiplied by a fraction, the numerator of which shall be the sum of (A) the  net  fair  market  values  of  the assets  held  in the trust at the beginning of the first business day of the current valuation year and (B) the net fair  market  values  of  the assets  held  in the trust at the beginning of the first business day of the prior valuation year, and the denominator of which shall be two.  (3) Commencing with the third year of a trust as a unitrust, including a first short year if applicable, the "unitrust amount"  for  a  current valuation  year  of the trust shall mean an amount equal to four percent multiplied by a fraction, the numerator of which shall be the sum of (A) the net fair market values of the  assets  held  in  the  trust  at  the beginning  of  the  first business day of the current valuation year and (B) the net fair market values of the assets held in the  trust  at  the beginning  of  the  first business day of each prior valuation year, and the denominator of which shall be three.  (4) The unitrust amount for the current valuation year as computed  in accordance  with  subparagraph  (b)(1),  (2)  or  (3),  as  adjusted  in accordance with this subparagraph, shall be proportionately reduced  for any  corpus  distributions to beneficiaries mandated by the terms of the trust, in whole or in part (other than  distributions  of  the  unitrust amount),  and  shall be proportionately increased for the receipt, other than a receipt that represents a return on investment, of any additional corpus into the trust within a current valuation year.  (5) For purposes of clause (b)(2)(B), the net fair  market  values  of the  assets held in the trust at the beginning of the first business day of a prior valuation year shall be adjusted to reflect any distributions to beneficiaries mandated by the terms of the trust, in whole or in part (other than distributions of the unitrust amount),  or  receipts  (other than  receipts  that represent a return on investment) of any additional principal into the trust, which have occurred after  the  first  day  of such  prior  valuation  year  and  by  the close of the first day of the current valuation year, as if the distribution or receipt  had  occurred on the first day of such prior valuation year.  (6)  In  the  case  of  a  short  year,  the trustee shall prorate the unitrust amount  on  a  daily  basis.  The  trustee  shall  prorate  any adjustment under subparagraph (b)(4) on a daily basis.  (7)  In  the  case  where  the  unitrust  amount  has been incorrectly determined either in a current valuation year or in  a  prior  valuation year,  then  within  a  reasonable  time (not to exceed eighteen months) after the error was  made,  the  trustee  shall  make  any  non-material adjustments   and   pay   to  the  underpaid  beneficiary  (in  case  of non-material  underpayment)  or  shall   recover   from   the   overpaid beneficiary (in case of non-material overpayment) an amount equal to the difference  between  the unitrust amount properly payable and any amount actually paid for any completed valuation year of the  trust  and  shall properly  adjust  the  unitrust amount for the current valuation year if  affected non-materially by prior incorrect determination of  a  unitrust amount. A material correction shall require approval of the surrogate if applied for by the trustee or an interested party.  (c) Other definitions and special rules. For purposes of this section:  (1) A "current beneficiary" is a person to whom the income (within the meaning of this section or otherwise) of the trust is payable, or in the discretion  of  the trustee may be paid, in whole or in part, during the current valuation year.  (2) The term "current valuation year" shall mean the year of the trust for which the unitrust amount is being determined.  (3) The term "prior valuation year" shall mean each of the  two  years of the trust immediately preceding the current valuation year.  (4)  The term "year" means a calendar year. A "short year" constitutes a portion of a calendar year  that  begins  when  the  interest  of  the current  beneficiary  or  class  of current beneficiaries begins or ends when the interest  of  the  current  beneficiary  or  class  of  current beneficiaries ends.  (5)  "Net  fair market value" shall mean the fair market value of each asset comprising the trust reduced by  the  fair  market  value  of  any outstanding interest-bearing obligations of the trust, whether allocable to  a  specific asset or otherwise. Fair market value of an asset may be determined by any appropriate technique adopted and consistently applied by the trustee, and such techniques may include, but are not limited to, use of the asset's value at  the  close  of  business  on  the  previous business  day,  and notwithstanding that such day may be in a prior year or be a day on which the trust was not subject to this section.  (6) In determining the sum of the net fair market values of the assets held in the trust for purposes of subparagraphs (b)(1), (2) and (3), and in determining whether an adjustment  is  required  in  accordance  with subparagraph  (b)(4)  or  (5), there shall not be taken into account the value:  (A) of any residential property  or  any  tangible  personal  property that,  as  of  the  beginning  of  the first business day of the current valuation year, one or more current beneficiaries of the trust  have  or had  the right to occupy, or have or had the right to possess or control (other than in his or her capacity as  a  trustee  of  the  trust),  and instead  the  right  of  occupancy or the right to possession or control shall be  deemed  to  be  the  unitrust  amount  with  respect  to  such residential  property  or  such  tangible  personal  property; provided, however, that the unitrust amount shall be adjusted in  accordance  with subparagraphs  (b) (4) and (5) for partial distributions from or receipt into the  trust  of  such  residential  property  or  tangible  personal property during the current valuation year.  (B) of any asset specifically given to a beneficiary and the return on investment  on  such  property,  which  return  on  investment  shall be distributable to such beneficiary.  (C) of any assets while held in a testator's estate.  (D) of (i) amounts paid or distributed to the trust  by  a  decedent's estate,  another  trust  or another payor, as income pursuant to article 11-A attributable to an asset or amount due to the trust  for  a  period prior  to its payment or distribution to the trust, unless and except to the extent that the unitrust trustee, having  the  power  to  accumulate income,  shall  have  determined  to  accumulate  and add such income to principal, and such unaccumulated net income shall be  distributable  to the  beneficiaries  of the trust; or (ii) any amount paid or distributed by such decedent's estate, other  trust  or  other  payor,  directly  to beneficiaries of the trust in satisfaction of their ultimate entitlement to such income.  (7) In determining the net fair market value of each asset held in the trust  pursuant to subparagraphs (b)(1), (2) and (3), the trustee shall, not less often than annually, determine the fair market  value  of  each asset  of  the  trust  that consists primarily of real property or other property  that is not traded on a regular basis in an active market, and all such determinations shall, if made reasonably and in good faith,  be conclusive  on  all  persons interested in the trust. Such determination shall be conclusively presumed to have been made reasonably and in  good faith  unless proven otherwise in a proceeding commenced by or on behalf of a person interested in the trust within three years after  the  close of the year in which the determination is made.  (8) The term "trustee" does not include a personal representative.  (9) The term "trust" does not include an estate.  (d) Commencement of current beneficiary's interest.  (1)  The  interest  of  a  current  beneficiary  or  class  of current beneficiaries in the unitrust amount begins on the date  on  which  this section becomes applicable to the trust pursuant to clause (e)(4)(A), or if  later  the  date  assets first become subject to the trust. An asset becomes subject to a trust:  (A) on the date it is transferred to the trust in the case of an asset that is transferred to a trust during the transferor's life;  (B) on the date it is transferred to the trust in the case of an asset that is transferred to a testamentary trust created under a will;  (C) on the date of an individual's death in the case of an asset  that is transferred to a trust by a third party by reason of the individual's death;  (D)  on  the date of an individual's death in the case of a trust that owns life insurance on the individual's life; or  (E) on the date a revocable trust becomes irrevocable in the  case  of assets then held in the trust.  (2)  A  trust  which  continues in existence for the benefit of one or more new current beneficiaries or class of  current  beneficiaries  upon the  termination  of the interests of all prior current beneficiaries or classes of prior current beneficiaries, shall be  deemed  to  be  a  new trust,  and,  for  purposes  of  clauses  (e)(1)(B)  and  (e)(4)(A)  and subparagraph (d)(1), assets shall be deemed to first become  subject  to the trust on the date of the termination of such interests.  (e) Trusts to which section applies.  (1) This section shall apply to any trust if:  (A) the governing instrument provides that this section shall apply to such trust, or  (B)  (i)  with respect to a trust in existence prior to January first, two thousand two, on or before December thirty-first, two thousand five, the trustee, with the consent by or on behalf of all persons  interested in  the  trust  or  in  his,  her or its discretion, elects to have this section apply to such trust, or  (ii) with respect to a trust not in existence prior to January  first, two  thousand  two, on or before the last day of the second full year of the trust beginning after assets first become subject to the trust,  the trustee,  with  the consent by or on behalf of all persons interested in the trust or in his, her or its discretion, elects to have this  section apply to such trust.  (iii)  An  election in accordance with this subparagraph shall be made by an instrument,  executed  and  acknowledged,  and  delivered  to  the creator  of  the  trust,  if  he  or  she is then living, to all persons interested in the trust or to their representatives and to the court, if any, having jurisdiction over the trust.  (2) (A) The court having jurisdiction of a trust to which this section otherwise would  apply  by  reason  of  subparagraph  (e)(1)  or  clause (e)(2)(B),  upon  the  petition of the trustee or any beneficiary of the trust and upon notice to all persons interested in the trust, may direct that  article  11-A shall apply to the trust and that this section shall not apply to the trust; and  (B) At any time, the court having jurisdiction of  a  trust  to  which this section otherwise would not apply, upon the petition of the trustee or  any  beneficiary  of  the  trust  and  upon  notice  to  all persons interested in the trust, may direct that this section shall apply to the trust and that article 11-A shall not apply to the trust.  (3) For  the  purposes  of  this  section,  the  phrase  "all  persons interested in the trust" shall mean all the persons upon whom service of process would be required in a proceeding for the judicial settlement of the  account  of  the trustee, taking into account section three hundred fifteen  of  the  surrogate's  court  procedure  act.  Where  a   person interested  in  the  trust  has  the  same  interest as a person under a disability, it shall not be necessary to obtain the consent of or notify the person under a disability.  (4) (A) This section shall apply to a  trust  with  respect  to  which there is:  (i)  a direction in the governing instrument in accordance with clause (e)(1)(A), as of the date provided for in such governing instrument,  or if there is no provision then as of the day on which assets first become subject to the trust;  (ii)  an  election in accordance with clause (e)(1)(B), as of the date specified in the election, which may be any day within the year in which the election is made or the first day of the year commencing  after  the election is made; or a  (iii)  court  decision rendered in accordance with clause (e)(2)(B) as of the date specified by the court in its decision;   Provided, however, that if later than any date  set  by  this  clause, this  section  shall  not  apply  to  the trust until January first, two thousand two.  (B) If this section applied to a trust with respect to which  a  court decision  is  rendered in accordance with clause (e)(2)(A), this section shall cease to apply to such trust and article 11-A shall apply  to  the trust  as  of  the first day of the year beginning after the decision of the court becomes final, unless  the  court  in  its  decision  provides otherwise.  (5)  In  the  determination  of  whether  article 11-A or this section should apply to a trust:  (A) All of the factors relevant to the trust  and  its  beneficiaries, including  the  following factors to the extent they are relevant, shall be considered:  (i) the nature, purpose, and expected duration of the trust;  (ii) the intent of the creator of the trust;  (iii) the identity and circumstances of the beneficiaries;  (iv) the needs for liquidity, regularity of payment, and  preservation and appreciation of capital;  (v)  the assets held in the trust; the extent to which they consist of financial assets, interests in closely held  enterprises,  tangible  and intangible  personal  property, or real property; the extent to which an asset is used by a beneficiary; and whether an asset  was  purchased  by the trustee or received from the creator of the trust.  (B)  In  any proceeding brought pursuant to subparagraph (e)(2), there shall be a rebuttable presumption that this section should apply to  the trust.  (f)  Trusts  to which this section shall not apply. This section shall not apply to a trust if:  (1)  the  governing instrument provides in substance that this section shall not apply;  (2) the trust is a pooled income fund described in  section  642(c)(5) of the United States internal revenue code of 1986;  (3)  the trust is a charitable remainder annuity trust or a charitable remainder unitrust  described  in  section  664  of  the  United  States internal revenue code of 1986; or  (4)  the  trust  is  an  irrevocable lifetime trust which provides for income to be  paid  for  the  life  of  a  grantor,  and  possessing  or exercising  the  power to make this section apply would cause any public benefit program to consider additional amounts of principal or income to be an available resource or  available  income,  and  the  principal  or income  or  both  would  in  each  case  not  be considered an available resource or income, if there was no power to make  this  section  apply, if,  based upon the facts and circumstances surrounding the formation of such trust, it can reasonably be concluded that the primary purpose  for the  establishment  of  the trust was to ensure that the trust principal would not be treated as an available resource  for  the  purposes  of  a governmental assistance program.