S7183-2011 Actions

• May 1, 2012: REFERRED TO JUDICIARY

S7183-2011 Memo

BILL NUMBER:S7183

TITLE OF BILL:
An act
to amend the estates, powers and trusts law, in relation to the role
and duties of advisors in trust agreements

PURPOSE:
This bill creates authority for grantors to establish directed
trusteeships under which fiduciaries would act under the advice or
direction of an advisor or protector who could direct, consent to or
disapprove the fiduciaries' decisions with regard to investments,
distributions or other matters.

SUMMARY OF PROVISIONS:
Section One: Amends the estates, powers and trusts law to make clear
that grantors may establish directed trusteeships, clarifies the
responsibilities of fiduciaries who follow the advice or direction of
an advisor or protector, and specifies the duties of the fiduciary in
relation to advisors and protectors. Also, it states that advisors
accept the jurisdiction of New York courts when accepting
appointment. It also sets the same standard of reasonable
compensation for an advisor as exists for other fiduciaries. Finally,
it clarifies that the term "advisor" includes "protectors," and
specifies some, but not all, of the powers of advisors; and clarifies
the term "investment decision."

Section Two: States that the section applies to all trusts that come
into existence after the date of enactment which incorporate this
section by reference.

JUSTIFICATION:
A growing number of states are recognizing the desire of trust
grantors to establish bifurcated trusts which vest authority for
investment and other major decisions in the hands of an advisor or
protector while retaining a traditional corporate trustee to
administer the trust, maintaining books and records, filing tax
returns, reporting to beneficiaries and performing other ministerial
functions. While the New York courts have recognized the validity of
directed trusteeships in New York, there is no body of law which
provides guidance as to how such trusteeships should function. In
addition, New York's Prudent Investor Act, which is unique among the
states which have enacted a prudent investor act, makes a fiduciary
liable for any delegation of investment or other decisions, even when
the fiduciary follows all of the rules of delegation contained in the
Prudent Investor Act Thus, New York fiduciaries, even when directed
by an advisor or protector in all investment decision, remain liable
under New York law for those decisions. This anomalous result has
caused grantors to choose states other than New York to establish
directed trusts. New York fiduciaries have, in many cases,
established non-New York affiliates to administer directed
trusts, but using out-of-state affiliates has two problems. First,
many New York corporate trustees are too small to establish
out-of-state affiliate, resulting in their being at a competitive
disadvantage in competing for directed trusteeship business with
larger corporate trustees. Second, the existence of out-of-state


affiliates encourages a large number of trust grantors to establish
their trusts in jurisdictions more friendly to directed trusteeships
than New York, taking jobs and the corporate and personal income
taxes they generate out of the state. This legislation is designed to
remedy this gap in the State's judicial fabric by providing guidance
for the courts, grantors and fiduciaries as to the governing law, in
the absence of provisions in the trust instrument to the contrary,
for directed trusteeships. It clarifies matters of definition, court
jurisdiction, compensation, fiduciary liability and the
responsibility of administrative trustees and advisors or protectors.
As in the Uniform Prudent Management of Institutional Funds Act,
Chapter 490 of the Laws of 2010, it allows a fiduciary to delegate
responsibility to a delegee so long as the instrument so provides and
the delegation is in accordance with its terms. This
bill is designed to help New York fiduciaries compete for trust
business. which is increasingly flowing to states with more modern
trust laws.

LEGISLATIVE HISTORY:
New bill.

FISCAL IMPLICATIONS:
None.

EFFECTIVE DATE:
Immediately

S7183-2011 Text

                      S T A T E   O F   N E W   Y O R K
  ________________________________________________________________________

                                    7183

                              I N  SENATE

                                 May 1, 2012
                                 ___________

  Introduced  by  Sen. BONACIC -- read twice and ordered printed, and when
    printed to be committed to the Committee on Judiciary

  AN ACT to amend the estates, powers and trusts law, in relation  to  the
    role and duties of advisors in trust agreements

    THE  PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
  BLY, DO ENACT AS FOLLOWS:


    Section 1. The estates, powers and trusts law is amended by  adding  a
  new section 11-2.2-a to read as follows:

  S 11-2.2-A ADVISORS
    (A) ADVISORS.
    (1)  WHERE  ONE  OR MORE PERSONS ARE GIVEN AUTHORITY BY THE TERMS OF A
  GOVERNING INSTRUMENT TO DIRECT, CONSENT TO OR DISAPPROVE  A  FIDUCIARY'S
  ACTUAL OR PROPOSED INVESTMENT DECISIONS, DISTRIBUTION DECISIONS OR OTHER
  DECISION  OF THE FIDUCIARY, SUCH PERSONS SHALL BE CONSIDERED TO BE ADVI-
  SORS AND FIDUCIARIES WHEN EXERCISING SUCH AUTHORITY UNLESS THE GOVERNING
  INSTRUMENT OTHERWISE PROVIDES.
    (2) IF A GOVERNING INSTRUMENT PROVIDES THAT A FIDUCIARY IS  TO  FOLLOW
  THE  DIRECTION  OF AN ADVISOR, AND THE FIDUCIARY ACTS IN ACCORDANCE WITH
  SUCH A DIRECTION, THEN EXCEPT IN CASES OF WILLFUL MISCONDUCT ON THE PART
  OF THE FIDUCIARY SO DIRECTED, THE FIDUCIARY SHALL NOT BE LIABLE FOR  ANY
  LOSS RESULTING DIRECTLY OR INDIRECTLY FROM ANY SUCH ACT.
    (3)  IF  A  GOVERNING  INSTRUMENT PROVIDES THAT A FIDUCIARY IS TO MAKE
  DECISIONS WITH THE CONSENT OF AN ADVISOR, THEN EXCEPT IN CASES OF  WILL-
  FUL  MISCONDUCT  OR  GROSS  NEGLIGENCE ON THE PART OF THE FIDUCIARY, THE
  FIDUCIARY SHALL NOT BE LIABLE FOR ANY LOSS RESULTING DIRECTLY  OR  INDI-
  RECTLY FROM ANY ACT TAKEN OR OMITTED AS A RESULT OF SUCH ADVISOR'S FAIL-
  URE  TO PROVIDE SUCH CONSENT AFTER HAVING BEEN REQUESTED TO DO SO BY THE
  FIDUCIARY.
    (4) WHENEVER A GOVERNING INSTRUMENT PROVIDES THAT A  FIDUCIARY  IS  TO
  FOLLOW THE DIRECTION OF AN ADVISOR WITH RESPECT TO INVESTMENT DECISIONS,
  DISTRIBUTION  DECISIONS,  OR  OTHER  DECISIONS  OF  THE FIDUCIARY, THEN,
  EXCEPT TO THE EXTENT THAT THE GOVERNING INSTRUMENT  PROVIDES  OTHERWISE,
  THE FIDUCIARY SHALL HAVE NO DUTY TO:

    (A) MONITOR THE CONDUCT OF THE ADVISOR;

   EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                        [ ] is old law to be omitted.
                                                             LBD15546-01-2

 S. 7183                             2

    (B) PROVIDE ADVICE TO THE ADVISOR OR CONSULT WITH THE ADVISOR; OR
    (C) COMMUNICATE WITH OR WARN OR APPRISE ANY BENEFICIARY OR THIRD PARTY
  CONCERNING  INSTANCES  IN  WHICH THE FIDUCIARY WOULD OR MIGHT HAVE EXER-
  CISED THE FIDUCIARY'S OWN DISCRETION IN  A  MANNER  DIFFERENT  FROM  THE
  MANNER DIRECTED BY THE ADVISOR.
    ABSENT  CLEAR  AND CONVINCING EVIDENCE TO THE CONTRARY, THE ACTIONS OF
  THE FIDUCIARY PERTAINING TO MATTERS WITHIN THE SCOPE  OF  THE  ADVISOR'S
  AUTHORITY  (SUCH  AS  CONFIRMING THAT THE ADVISOR'S DIRECTIONS HAVE BEEN
  CARRIED OUT AND RECORDING AND REPORTING ACTIONS TAKEN AT  THE  ADVISOR'S
  DIRECTION),  SHALL BE PRESUMED TO BE ADMINISTRATIVE ACTIONS TAKEN BY THE
  FIDUCIARY SOLELY TO ALLOW THE FIDUCIARY TO PERFORM THOSE DUTIES ASSIGNED
  TO THE FIDUCIARY UNDER THE GOVERNING INSTRUMENT AND SUCH  ADMINISTRATIVE
  ACTIONS  SHALL NOT BE DEEMED TO CONSTITUTE AN UNDERTAKING BY THE FIDUCI-
  ARY TO MONITOR THE ADVISOR OR OTHERWISE PARTICIPATE  IN  ACTIONS  WITHIN
  THE SCOPE OF THE ADVISOR'S AUTHORITY.
    (B) COURT JURISDICTION.
    BY  ACCEPTING  APPOINTMENT TO SERVE AS ADVISOR, THE ADVISOR SUBMITS TO
  THE JURISDICTION OF THE COURTS OF THIS STATE EVEN IF THE ADVISORY AGREE-
  MENT OR OTHER RELATED AGREEMENTS PROVIDE OTHERWISE, AND THE ADVISOR  MAY
  BE  MADE  A  PARTY  TO  ANY  ACTION OR PROCEEDING RELATING TO DECISIONS,
  ACTIONS OR INACTIONS OF THE ADVISOR.
    (C) COMPENSATION.
    (1) THE ADVISOR SHALL BE ENTITLED  TO  SUCH  COMPENSATION  AS  MAY  BE
  REASONABLE,  AND  THE  COURT, UPON APPLICATION OF A PERSON INTERESTED IN
  THE TRUST, MAY REVIEW THE REASONABLENESS OF SUCH COMPENSATION.
    (2) THE FIDUCIARY SHALL BE ENTITLED TO COMMISSIONS IN ACCORDANCE  WITH
  ARTICLE TWENTY-THREE OF THE SURROGATE'S COURT PROCEDURE ACT.
    (D) DEFINITIONS. AS USED IN THIS SECTION:

    (1)  "ADVISOR"  SHALL  INCLUDE A "PROTECTOR" WHO SHALL HAVE ALL OF THE
  POWER AND AUTHORITY GRANTED TO THE PROTECTOR BY THE TERMS OF THE GOVERN-
  ING INSTRUMENT, WHICH MAY INCLUDE BUT SHALL NOT BE LIMITED TO:

    (A) THE POWER TO REMOVE AND APPOINT TRUSTEES, ADVISORS, TRUST  COMMIT-
  TEE MEMBERS, AND OTHER PROTECTORS;
    (B)  THE  POWER TO MODIFY OR AMEND THE GOVERNING INSTRUMENT TO ACHIEVE
  FAVORABLE TAX STATUS OR TO FACILITATE THE  EFFICIENT  ADMINISTRATION  OF
  THE TRUST; AND
    (C)  THE  POWER TO MODIFY, EXPAND, OR RESTRICT THE TERMS OF A POWER OF
  APPOINTMENT GRANTED TO A BENEFICIARY BY THE GOVERNING INSTRUMENT.
    (2) "INVESTMENT DECISION" MEANS, WITH RESPECT TO ANY  INVESTMENT,  THE
  RETENTION, PURCHASE, SALE, EXCHANGE, TENDER OR OTHER TRANSACTION AFFECT-
  ING THE OWNERSHIP THEREOF OR RIGHTS THEREIN, AND AN ADVISOR WITH AUTHOR-
  ITY WITH RESPECT TO SUCH DECISIONS IS AN INVESTMENT ADVISOR.
    S  2.  This  act  shall take effect immediately and shall apply to all
  trusts which come into existence after this act shall have become a law,
  provided, however, those trusts incorporate this  section  by  reference
  within the trust agreement.