2023 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.