2023 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.