New York Trustee powers

Where a trustee's powers come from

A trustee's authority has three sources, read in order. The trust instrument comes first: it may grant powers beyond the statute, limit the statute's powers, or condition them on someone's consent. Then comes the EPTL's list in section 11-1.1(b), which applies "in the absence of contrary or limiting provisions" in the instrument or in a court order appointing the fiduciary or a later one. Finally, the court with jurisdiction of the trust may authorize the fiduciary to exercise any other power that in its judgment is necessary for the proper administration of the trust (EPTL 11-1.1(c)).

A successor trustee inherits the same set: as successor or substitute fiduciary, the trustee succeeds to all of the powers, duties and discretion given to the original fiduciary, unless the instrument expressly prohibits a successor from exercising them (EPTL 11-1.1(b)(12)). And where one of two or more fiduciaries ceases to act, the survivor may continue to administer the trust and exercise the powers given to the original fiduciaries, without a successor being appointed, unless the instrument provides otherwise (EPTL 11-1.1(b)(11)).

The EPTL's grant, by example

Section 11-1.1(b) lists more than twenty powers. The ones a successor trustee meets in the first year are these:

• Invest and reinvest the trust's property under the Prudent Investor Act (EPTL 11-1.1(b)(3)).
• Keep fire, rent, title, liability, casualty and other insurance in force to protect the property (EPTL 11-1.1(b)(4)).
• Take possession of the property, collect its rents and manage it; sell it at public or private sale on the terms most advantageous to those interested; lease it — for a trustee, for up to ten years even beyond the trust's duration; and mortgage it — except property specifically disposed of by the instrument (EPTL 11-1.1(b)(5)).
• Make ordinary repairs, and grant options to buy for up to six months (EPTL 11-1.1(b)(6), (7)).
• Contest, compromise or settle claims for or against the trust (EPTL 11-1.1(b)(13)), and vote the securities it holds (EPTL 11-1.1(b)(14)).
• Hold the property of two or more trusts created by the same instrument as an undivided whole, so long as no holding defers the vesting of any estate (EPTL 11-1.1(b)(18)).
• Distribute in cash, in kind at fair market value on the date of distribution, or partly in each, without having to distribute specific property pro rata (EPTL 11-1.1(b)(20)).
• Pay the reasonable and proper expenses of administration, including the reasonable counsel fees necessarily incurred (EPTL 11-1.1(b)(22)).

What every power is subject to

Having a power is not the same as being free to use it any way. Investment and management decisions are made as a prudent investor would make them for the entire portfolio — a standard of conduct, not outcome — with a strategy, attention to the factors the act lists, diversification unless it is reasonably in the beneficiaries' interests not to diversify, and a decision about the initial assets within a reasonable time (EPTL 11-2.3). Receipts and disbursements are allocated between principal and income as the instrument and Article 11-A direct, and any discretion is exercised impartially (EPTL 11-A-1.3).

New York's duty of undivided loyalty comes from the case law rather than a section, and it is strict: a trustee does not deal with trust property for the trustee's own benefit. Where the trust is expressed in the instrument, a sale, conveyance or other act of the trustee in contravention of the trust, unless authorized by law, is void (EPTL 7-2.4). And an instrument cannot buy a trustee out of the standard of care: a grant of exoneration from liability for failing to exercise reasonable care, diligence and prudence, or of a power to fix an asset's value conclusively, is void as against public policy (EPTL 11-1.7) — for a lifetime trustee, in a trust executed on or after the 2018 amendment's effective date.

Discretionary distributions

A power to distribute principal or income "in the trustee's discretion" is still a fiduciary power. The instrument states the standard — support, health, education, best interests — and the trustee applies it to facts the record should show. Where the trustee is also a beneficiary, New York limits the power: a trustee cannot exercise a discretionary power to distribute principal or income to themselves, or to allocate receipts or expenses in their own favor, unless the trustee is the creator of a trust they can revoke, the power is limited to their health, education, maintenance or support, or the instrument expressly provides otherwise by reference to the section; the other trustees, or the court, exercise the power instead (EPTL 10-10.1).

The court has a power of its own. Unless the instrument provides otherwise, the court with jurisdiction of an income trust may make an allowance from principal to an income beneficiary whose support or education is not sufficiently provided for, after a hearing on notice, where the creator's original purpose cannot be carried out and the allowance carries out the creator's intention (EPTL 7-1.6).

A power with a notice attached: appointing principal in further trust

New York lets a trustee who has authority to invade principal appoint it to a new trust — what other states call decanting. Where the discretion to invade is unlimited, the new trust may be for some or all of the current beneficiaries; where it is limited, the new trust keeps the same beneficiaries and the same invasion terms (EPTL 10-6.6). The exercise is made by a signed, dated and acknowledged instrument, delivered with copies of both trusts to the persons the section names; it takes effect 30 days after service unless those persons consent in writing to an earlier date, a person interested may object before then, and silence is not consent (EPTL 10-6.6(j)).

Spendthrift terms and the beneficiaries' creditors

New York protects income interests by default. A beneficiary's right to receive the income of an express trust may not be transferred unless the instrument gives a power to transfer it, with a narrow exception for income above $10,000 a year transferred to the relatives the section names (EPTL 7-1.5). The beneficiary's creditors may reach the income beyond what the beneficiary's education and support require, where no valid direction to accumulate is given (EPTL 7-3.4), and a money judgment against a beneficiary generally does not reach property held in a trust created by someone other than the debtor (CPLR 5205(c)).

A trust for the creator's own benefit is different: a disposition in trust for the use of the creator is void as against the creator's existing and subsequent creditors (EPTL 7-3.1(a)), so a trust kept for the creator's own use is not a shelter from the creator's own creditors.

Powers and the people who deal with the trustee

Banks, brokers, buyers and title companies need to know that the trustee holds the power they are relying on, and New York gives them a reason to check: an act of a trustee in contravention of an expressed trust is void (EPTL 7-2.4). New York has no certification-of-trust statute, so each institution sets its own proof — in practice, commonly the instrument's trustee and powers pages, the acknowledgment and a death certificate, or letters of trusteeship from the Surrogate's Court for a trust created by a will. Keeping a clean set of those pages ready saves weeks.

Co-trustees, delegation, and the end of a trustee's powers

Unless the instrument says otherwise, a power held by two fiduciaries is exercised by both jointly, and one held by three or more by a majority; a fiduciary who joins the majority after promptly dissenting in writing is not liable for the decision, though not excused for failing to join in administering the trust or to prevent a breach (EPTL 10-10.7). Investment and management functions may be delegated only with care in selecting the delegee, setting the scope and terms, and reviewing the work, and an attempted exoneration of a delegee is void (EPTL 11-2.3(c)).

A trustee's powers end when the trusteeship does: on resignation accepted by the court (EPTL 7-2.6(a)(1); SCPA 715), on removal (EPTL 7-2.6(a)(2); SCPA 711, 719), or when the trust ends and its property is distributed. The court may also terminate a trust whose administration has become uneconomical, on a trustee's or beneficiary's application, if the terms do not prohibit it and termination would not defeat the trust's purpose (EPTL 7-1.19).

The ways trustees exceed their powers

Most trouble is not a power the trustee lacked but a power used badly: a sale to the trustee or a relative with no record of its fairness; a discretionary distribution to oneself beyond what EPTL 10-10.1 permits; a lease or mortgage of property the instrument specifically disposed of; an appointment in further trust without the notices EPTL 10-6.6 requires; or the trust's money in the trustee's own account, which the Surrogate's Court can act on without process (SCPA 719). Each is easier to prevent with a written record of the power, the purpose and the reason than to defend afterward.

When a licensed New York attorney is the right next call

TrusteeClear organizes the record; it does not give legal advice and does not tell a trustee whether a power exists for a particular act. Many trustees bring the instrument and the record to a licensed New York attorney of their choosing before a sale of real property, a transaction with a family member, an appointment in further trust, a distribution to a trustee-beneficiary, or any act the instrument's words leave unclear.