Relates to the role and duties of advisors in trust agreements

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