N.Y. Estates, Powers & Trusts Law § 11-a-4.14: Derivatives and options

§ 11-A-4.14 Derivatives and options

(a) In this section, "derivative" means a contract or financial

instrument or a combination of contracts and financial instruments which

gives a trust the right or obligation to participate in some or all

changes in the price of a tangible or intangible asset or group of

assets, or changes in a rate, an index of prices or rates, or other

market indicator for an asset or a group of assets.

(b) To the extent that a trustee does not account under 11-A-4.3 for

transactions in derivatives, the trustee shall allocate to principal

receipts from and disbursements made in connection with those

transactions.

(c) If a trustee grants an option to buy property from the trust,

whether or not the trust owns the property when the option is granted,

grants an option that permits another person to sell property to the

trust, or acquires an option to buy property for the trust or an option

to sell an asset owned by the trust, and the trustee or other owner of

the asset is required to deliver the asset if the option is exercised,

an amount received for granting the option must be allocated to

principal. An amount paid to acquire the option must be paid from

principal. A gain or loss realized upon the exercise of an option,

including an option granted to a settlor of the trust for services

rendered, must be allocated to principal.