What's happening
This bill clarifies that a lapse of a power of withdrawal over a trust by a beneficiary is not treated as creating or funding a trust for creditor or judgment purposes.
Why it matters
Protects trust beneficiaries from creditor claims. By clarifying that a beneficiary’s failure to exercise a power of withdrawal does not count as them creating or funding the trust, the bill shields assets in such trusts from being reached by the beneficiary’s creditors or judgments.
Prevents retroactive liability. The bill applies to all trusts, regardless of when they were created, ensuring that beneficiaries are not exposed to unexpected creditor risks for past lapses of withdrawal powers.
Preserves the intent of the original trust creator. This amendment reinforces that only the person who actually creates or funds the trust is treated as the trust’s “creator” for creditor protection purposes, maintaining the distinction between genuine settlors and mere beneficiaries.
Reduces legal uncertainty. By explicitly stating this interpretation as existing law, the bill aims to prevent litigation over whether a beneficiary’s lapsed withdrawal right exposes trust assets to creditors, providing clearer guidance for estate planners and trustees.
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Who cares
Trust beneficiaries
The bill would clarify that letting a withdrawal power lapse does not make them the creator or funder of a trust established by someone else for purposes of the specified creditor-protection rules.
Creditors and judgment collectors
They could not use the lapse of a withdrawal power alone to treat a beneficiary as having created or funded the trust and reach its assets under these provisions.
Trustees and estate-planning attorneys
The bill would make the clarification enforceable for all trusts created under New York law, regardless of when they were created.
Headline styles
Clarify Trust Withdrawal Rules
Plain English, a few words. Used as the page title.
Sponsors
2 Multi-sponsors
History
- Referred to judiciary
- Referred to judiciary
Companion bill
The same bill in the other chamber. A bill becomes law when one version passes both houses and the governor signs it, so either number can carry it.
Clarify Trust Withdrawal Rules
In Senate Committee · Judiciary · Sponsor Brad Hoylman-Sigal
Full text
1 pageUnderlined is new[Struck] is removedOfficial text on nysenate.gov ↗
STATE OF NEW YORK
4034
2019-2020 Regular Sessions
IN ASSEMBLY
January 31, 2019
Introduced by M. of A. WEPRIN -- Multi-Sponsored by -- M. of A. COLTON, ORTIZ -- read once and referred to the Committee on Judiciary
AN ACT to amend the estates, powers and trusts law and the civil practice law and rules, in relation to clarifying and declaring as the existing law of the state of New York the provisions of rules relating to the lapse of a power of withdrawal over the income or principal of a trust
The People of the State of New York, represented in Senate and Assembly, do enact as follows:
Section 1. Paragraph (a) of section 7-3.1 of the estates, powers and trusts law, as amended by chapter 108 of the laws of 1987, is amended to read as follows:
(a) A disposition in trust for the use of the creator is void as against the existing or subsequent creditors of the creator. No individual shall be treated for purposes of this section as having made a disposition in trust for the use of that individual by reason of a lapse of a power of withdrawal over the income or corpus of a trust created by another person.
§ 2. Paragraph 1 of subdivision (c) of section 5205 of the civil practice law and rules, as amended by chapter 93 of the laws of 1995, is amended to read as follows:
1. Except as provided in paragraphs four and five of this subdivision, all property while held in trust for a judgment debtor, where the trust has been created by, or the fund so held in trust has proceeded from, a person other than the judgment debtor, is exempt from application to the satisfaction of a money judgment. For purposes of this section, a judgment debtor shall not be treated as creating or funding a trust by reason of the lapse of a power of withdrawal over the income or principal of a trust created and funded by a person or persons other than the judgment debtor.
§ 3. This act shall take effect immediately and shall be enforceable as to all trusts created under New York law, regardless of when created, as it is declaratory of existing New York law.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD08397-01-9
Reflowed for reading: line numbers and page breaks removed. Cite the official text.
Summaries, headlines and scores are AI-generated from the official bill text. How we score bills. Source: NYS Open Legislation.