NY Est Pow & Trusts L § 10-6.6 (2021)
2021 New York Laws EPT - Estates, Powers and Trusts Article 10 - Powers Part 6 - Rules Governing Exercise of a Power of Appointment 10-6.6 - Exercise of a Power of Appointment; Effect When More Extensive or Less Extensive Than Authorized; Trustee's Authority to Invade Principal in Trust.

§ 10-6.6 Exercise  of a power of appointment; effect when more extensive            or less extensive than  authorized;  trustee's  authority  to            invade principal in trust.  (a)  An  exercise  of  a  power of appointment is not void because its exercise is:  (1) More extensive than was authorized but  is  valid  to  the  extent authorized by the instrument creating the power.  (2)  Less  extensive  than  authorized  by the instrument creating the power, unless the donor has manifested a contrary intention.  (b) An authorized trustee with unlimited discretion  to  invade  trust principal  may  appoint part or all of such principal to a trustee of an appointed trust for, and only for the benefit of, one, more than one  or all  of the current beneficiaries of the invaded trust (to the exclusion of any one or more of such current  beneficiaries).  The  successor  and remainder  beneficiaries  of  such appointed trust may be one, more than one or all of the successor and remainder beneficiaries of such  invaded trust  (to  the  exclusion  of  any  one,  more  than one or all of such successor and remainder beneficiaries).  (1) An authorized trustee exercising the power  under  this  paragraph may  grant  a discretionary power of appointment as defined in paragraph (c) of section 10-3.4 of this article (including a presently exercisable power of appointment) in the appointed trust  to  one  or  more  of  the current   beneficiaries   of   the  invaded  trust,  provided  that  the beneficiary granted a power  to  appoint  could  receive  the  principal outright under the terms of the invaded trust.  (2)  If  the  authorized  trustee  grants a power of appointment under subparagraph (l) of this paragraph,  except  as  otherwise  provided  in subparagraph  (3)  of this paragraph, the granted power may only exclude as permissible appointees one or more of the beneficiary,  the  creator, or  the creator's spouse, or any of the estates, creditors, or creditors of the estates of the beneficiary, the creator or the creator's spouse.  (3)  If  the  authorized  trustee  exercises  the  power  under   this paragraph,  the  appointed  trust  may  grant  any  power of appointment included in the invaded trust provided such power has the same class  of permissible  appointees as the power of appointment in the invaded trust and is exercisable in the same fashion as the power  of  appointment  in the invaded trust.  (4)  If  the  beneficiary  or  beneficiaries  of the invaded trust are described by a class, the beneficiary or beneficiaries of the  appointed trust may include present or future members of such class.  (c) An authorized trustee with the power to invade trust principal but without unlimited discretion may appoint part or all of the principal of the  trust to a trustee of an appointed trust, provided that the current beneficiaries of the appointed trust shall be the same  as  the  current beneficiaries  of  the  invaded  trust  and  the successor and remainder beneficiaries of the appointed trust shall be the same as the  successor and remainder beneficiaries of the invaded trust.  (1)   If  the  authorized  trustee  exercises  the  power  under  this paragraph,  the  appointed  trust  shall  include  the   same   language authorizing the trustee to distribute the income or invade the principal of the appointed trust as in the invaded trust.  (2) If the authorized trustee exercises the power under this paragraph to extend the term of the appointed trust beyond the term of the invaded trust,  for  any  period  after  the  invaded trust would have otherwise terminated under the provisions of  the  invaded  trust,  the  appointed trust,  in  addition  to  the  language  required  to be included in the appointed trust pursuant to subparagraph (1) of this paragraph, may also  include language providing the trustees  with  unlimited  discretion  to invade the principal of the appointed trust during such extended term.  (3)  If  the  beneficiary  or  beneficiaries  of the invaded trust are described by a class, the beneficiary or beneficiaries of the  appointed trust shall include present or future members of such class.  (4) If the authorized trustee exercises the power under this paragraph and  if the invaded trust grants a power of appointment to a beneficiary of the trust, the appointed trust shall grant such power of  appointment in  the appointed trust and the class of permissible appointees shall be the same as in the invaded trust.  (d)  An  exercise  of  the  power  to  invade  trust  principal  under paragraphs  (b) and (c) of this section shall be considered the exercise of a special power of appointment as defined in section 10-3.2  of  this article.  (e)  The  appointed  trust to which an authorized trustee appoints the assets of the invaded trust may have a term that is longer than the term set forth in the invaded trust, including, but not limited  to,  a  term measured by the lifetime of a current beneficiary.  (f)  If  an  authorized trustee has unlimited discretion to invade the principal of a trust and the same trustee or  another  trustee  has  the power  to invade principal under the trust instrument which power is not subject  to  unlimited  discretion,  such  authorized   trustee   having unlimited  discretion  may  exercise  the  power  of  appointment  under paragraph (b) of this section.  (g) An authorized trustee may exercise the power to appoint  in  favor of  an  appointed  trust  under  paragraphs  (b) and (c) of this section whether or not there is a current need to  invade  principal  under  the terms of the invaded trust.  (h)  An authorized trustee exercising the power under this section has a fiduciary duty to exercise the power in the best interests of  one  or more proper objects of the exercise of the power and as a prudent person would  exercise  the  power  under  the  prevailing  circumstances.  The authorized trustee may not exercise the  power  under  this  section  if there is substantial evidence of a contrary intent of the creator and it cannot  be  established that the creator would be likely to have changed such intention under the circumstances  existing  at  the  time  of  the exercise of the power. The provisions of the invaded trust alone are not to be viewed as substantial evidence of a contrary intent of the creator unless  the  invaded trust expressly prohibits the exercise of the power in the manner intended by the authorized trustee.  (i) Unless the authorized trustee provides otherwise:  (1) The appointment of all of the assets comprising the  principal  of the  invaded  trust  to  an  appointed  trust shall include subsequently discovered assets of the invaded trust and  undistributed  principal  of the invaded trust acquired after the appointment to the appointed trust; and  (2)  The  appointment of part but not all of the assets comprising the principal of the invaded trust to an appointed trust shall  not  include subsequently  discovered  assets  belonging  to  the  invaded  trust and principal paid to or acquired by the invaded trust after the appointment to the appointed trust; such assets  shall  remain  the  assets  of  the invaded trust.  (j)  The  exercise of the power to appoint to an appointed trust under paragraph (b) or (c) of this section shall be evidenced by an instrument in writing, signed, dated and acknowledged by  the  authorized  trustee. The  exercise of the power shall be effective thirty days after the date of service of the instrument as specified in subparagraph  (2)  of  this paragraph, unless the persons entitled to notice consent in writing to a  sooner  effective date. The exercise of the power is irrevocable on such effective date, either thirty days following service of  the  notice  or the effective date as set forth in the written consent.  (1)  An  authorized  trustee  may  exercise  the  power  authorized by paragraphs (b) and (c) of  this  section  without  the  consent  of  the creator,  or of the persons interested in the invaded trust, and without court approval, provided that the  authorized  trustee  may  seek  court approval  for  the exercise with notice to all persons interested in the invaded trust.  (2) A copy of the instrument exercising the power and a copy  of  each of  the  invaded trust and the appointed trust shall be delivered (A) to the creator, if living, of the invaded trust, (B) to any  person  having the  right,  pursuant  to  the  terms of the invaded trust, to remove or replace the authorized trustee exercising the power under paragraph  (b) or (c) of this section, and (C) to any persons interested in the invaded trust and the appointed trust (or, in the case of any persons interested in  the  trust, to any guardian of the property, conservator or personal representative of any such person or the parent or person with whom  any such  minor  person  resides),  by  registered or certified mail, return receipt requested, or by  personal  delivery  or  in  any  other  manner directed by the court having jurisdiction over the invaded trust.  (3)  The  instrument  exercising  the  power  shall  state whether the appointment is of all the assets comprising the principal of the invaded trust or a part but not all the assets comprising the principal  of  the invaded  trust and if a part, the approximate percentage of the value of the  principal  of  the  invaded  trust  that  is  the  subject  of  the appointment.  (4)  A  person  interested  in  the  invaded  trust  may object to the trustee's exercise of the power under this section by serving a  written notice  of objection upon the trustee prior to the effective date of the exercise of the power. The failure to  object  shall  not  constitute  a consent.  (5) The receipt of a copy of the instrument exercising the power shall not  affect  the  right of any person interested in the invaded trust to compel the authorized trustee who exercised the  power  under  paragraph (b)  or  (c)  of this section to account for such exercise and shall not foreclose any such interested person from objecting  to  an  account  or compelling  a  trustee to account. Whether the exercise of a power under paragraph (b) or (c) of this section begins the running of  the  statute of  limitations  on  an  action  to compel a trustee to account shall be based on all the facts and circumstances of the situation.  (6) A copy of the instrument exercising the power shall be  kept  with the  records  of  the  invaded  trust  and,  within  twenty  days of the effective date,  the  original  shall  be  filed  in  the  court  having jurisdiction  over  the invaded trust. Where a trustee of an inter vivos trust exercises the power and the trust has not been the  subject  of  a proceeding  in  the  surrogate's  court,  no  filing  is  required.  The instrument shall state that in  certain  circumstances  the  appointment will  begin the running of the statute of limitations that will preclude persons interested in the invaded trust from compelling an accounting by the trustees after the expiration of a given time.  (7) Prior to the effective date as  provided  herein,  a  trustee  may revoke  the  exercise  of  the  power  to invade to a new trust. Where a trustee has served notice of the  exercise  of  the  power  pursuant  to subparagraph  (2)  of  this paragraph, the trustee shall serve notice of the revocation of the exercise of the power to persons interested in the invaded trust and the appointed trust by registered or  certified  mail, return receipt requested, or by personal delivery or in any other manner  directed  by the court having jurisdiction over the invaded trust. Where the notice of the exercise of the power was filed with  the  court,  the trustee shall file the notice of revocation of the exercise of the power with such court.  (k)  This  section  shall not be construed to abridge the right of any trustee to appoint property in further trust that arises under the terms of the governing instrument of a trust or under any other  provision  of law or under common law, or as directed by any court having jurisdiction over the trust.  (1)  Nothing  in this section is intended to create or imply a duty to exercise a power to invade principal, and no  inference  of  impropriety shall  be  made  as a result of an authorized trustee not exercising the power conferred under paragraph (b) or (c) of this section.  (m) A power authorized by paragraph (b) or (c) of this section may  be exercised,  subject  to the provisions of paragraph (h) of this section, unless expressly prohibited by the terms of  the  governing  instrument, but  a general prohibition of the amendment or revocation of the invaded trust or a provision that constitutes a  spendthrift  clause  shall  not preclude  the  exercise  of  a  power under paragraph (b) or (c) of this section.  (n) An authorized trustee may  not  exercise  a  power  authorized  by paragraph (b) or (c) of this section to effect any of the following:  (1)  To  reduce,  limit or modify any beneficiary's current right to a mandatory distribution of income or principal, a  mandatory  annuity  or unitrust  interest, a right to withdraw a percentage of the value of the trust or a right to withdraw a specified dollar  amount,  provided  that such   mandatory  right  has  come  into  effect  with  respect  to  the beneficiary. Notwithstanding the foregoing, but  subject  to  the  other limitations  in this section, an authorized trustee may exercise a power authorized by paragraph (b) or (c) of this  section  to  appoint  to  an appointed  trust that is a supplemental needs trust that conforms to the provisions of section 7-1.12 of this chapter;  (2)  To  decrease  or  indemnify  against  a  trustee's  liability  or exonerate  a  trustee  from liability for failure to exercise reasonable care, diligence and prudence;  (3) To eliminate a provision granting  another  person  the  right  to remove  or  replace  the  authorized  trustee exercising the power under paragraph (b) or (c) of this section unless a court having  jurisdiction over the trust specifies otherwise;  (4)  To  make  a  binding  and conclusive fixation of the value of any asset for purposes of distribution, allocation or otherwise; or  (5) To jeopardize (A) the deduction or  exclusion  originally  claimed with respect to any contribution to the invaded trust that qualified for the annual exclusion under section 2503(b) of the internal revenue code, the  marital  deduction under section 2056(a) or 2523(a) of the internal revenue code, or the charitable deduction under section 170(a),  642(c), 2055(a)  or  2522(a) of the internal revenue code, (B) the qualification of a transfer as a direct skip under section  2642(c)  of  the  internal revenue  code,  or  (C)  any  other  specific  tax  benefit  for which a contribution  originally  qualified  for  income,   gift,   estate,   or generation-skipping  transfer  tax  purposes  under the internal revenue code.  (o) An authorized trustee shall consider the tax implications  of  the exercise of the power under paragraph (b) or (c) of this section.  (p)  An  authorized  trustee  may  not  exercise  a power described in paragraph (b) or (c) of this section in  violation  of  the  limitations under  sections  9-1.1,  10-8.1 and 10-8.2 of this chapter, and any such exercise shall void the entire exercise of such power.  (q)(1) Unless a court otherwise directs, an authorized trustee may not exercise a power authorized by paragraph (b) or (c) of this  section  to change the provisions regarding the determination of the compensation of any  trustee;  the  commissions  or  other  compensation  payable to the trustees of the invaded trust may continue to be paid to the trustees of the  appointed trust during the term of the appointed trust and shall be determined in the same manner as in the invaded trust.  (2)  No  trustee  shall  receive  any  paying  commission   or   other compensation  for  appointing  of  property from the invaded trust to an appointed trust pursuant to paragraph (b) or (c) of this section.  (r) Unless  the  invaded  trust  expressly  provides  otherwise,  this section applies to:  (1)  Any  trust  governed by the laws of this state, including a trust whose governing law has been changed to the laws of this state; and  (2) Any trust that has a trustee who is  an  individual  domiciled  in this  state  or  a  trustee  which is an entity having an office in this state, provided that a majority of the trustees select this state as the location for the primary administration of the trust by an instrument in writing, signed and acknowledged by a  majority  of  the  trustees.  The instrument  exercising  this selection shall be kept with the records of the invaded trust.  (s) For purposes of this section:  (1) The term  "appointed  trust"  means  an  irrevocable  trust  which receives  principal  from an invaded trust under paragraph (b) or (c) of this section including a new trust created by the creator of the invaded trust or by the trustees, in that capacity, of the  invaded  trust.  For purposes of creating the new trust, the requirement of section 7-1.17 of this  chapter  that  the  instrument be executed and acknowledged by the person  establishing  such  trust  shall  be  deemed  satisfied  by  the execution and acknowledgment of the trustee of the appointed trust.  (2)  The  term "authorized trustee" means, as to an invaded trust, any trustee or trustees with authority to pay trust principal to or for  one or  more  current  beneficiaries  other  than (i) the creator, or (ii) a beneficiary to whom income or principal must be paid currently or in the future, or who is or will become eligible to receive a  distribution  of income  or principal in the discretion of the trustee (other than by the exercise of a power of appointment held in a non-fiduciary capacity).  (3) References to sections of the "internal revenue code" refer to the United States internal revenue code of 1986, as  amended  from  time  to time,  or  to  corresponding  provisions  of subsequent internal revenue laws, and also refer to corresponding provisions of state law.  (4) The term "current beneficiary or beneficiaries" means  the  person or  persons  (or  as  to  a class, any person or persons who are or will become members of such  class)  to  whom  the  trustees  may  distribute principal  at  the  time  of the exercise of the power, provided however that the interest of a beneficiary to whom income,  but  not  principal, may be distributed in the discretion of the trustee of the invaded trust may be continued in the appointed trust.  (5)  The  term  "invade"  shall  mean the power to pay directly to the beneficiary of a trust or  make  application  for  the  benefit  of  the beneficiary.  (6)  The  term  "invaded  trust"  means any existing irrevocable inter vivos or testamentary trust whose principal is appointed under paragraph (b) or (c) of this section.  (7) The term "person or persons interested in the invaded trust" shall mean any person or  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.  (8)  The term "principal" shall include the income of the trust at the time of the exercise of the power that is not currently required  to  be distributed, including accrued and accumulated income.  (9)  The  term  "unlimited  discretion"  means  the unlimited right to distribute principal that is not modified in any manner. A power to  pay principal  that includes words such as best interests, welfare, comfort, or happiness shall not be considered a limitation or modification of the right to distribute principal.  (10) The creator shall not be considered to be  a  beneficiary  of  an invaded  or  appointed trust by reason of the trustee's authority to pay trust principal to the  creator  pursuant  to  section  7-1.11  of  this chapter  or  by  reason  of  the  trustee's  authority  under  the trust instrument or any other provision of law to pay or reimburse the creator for any tax on trust income or trust principal that is  payable  by  the creator  under the law imposing such tax or to pay any such tax directly to the taxing authorities.  (t) Cross-reference. For the exercise of the power under paragraph (b) or (c) of this section where there are multiple trustees,  see  sections 10-6.7 and 10-10.7 of this article.