Relates to the role and duties of advisors in trust agreements.
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 1: Amends the Estates, Powers and Trusts Law by adding a new section 11-2.2-a 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 2: Effective date.
JUSTIFICATION: This legislation is designed to remedy a 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.
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 perform 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 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. This is unusual among the states that have enacted a prudent inves tor 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. The broad liability exposure that fiduciaries are subjected to causes 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 an 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. This pulls jobs and the corporate and personal income taxes they generate out of the State, which this legislation will help resolve.
LEGISLATIVE HISTORY: S.7183 of 2012: Died in Senate Judiciary Committee
FISCAL IMPLICATIONS: None.
EFFECTIVE DATE: 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.
STATE OF NEW YORK ________________________________________________________________________ 2014 2013-2014 Regular Sessions IN SENATE (PREFILED) January 9, 2013 ___________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,EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets [ ] is old law to be omitted. LBD05971-01-3 S. 2014 2
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; (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.