N.Y. Estates, Powers & Trusts Law § 7-1.13: Division of trusts and establishment of separate trusts

§ 7-1.13 Division of trusts and establishment of separate trusts

(a) Notwithstanding any contrary provision of law, unless expressly

prohibited by the terms of the disposing instrument:

(1) the trustee of an express trust (which term as defined in

paragraph (g) of this section may mean the executor or administrator) is

authorized without prior court approval or the consent of the persons

interested to establish two or more separate trusts in order to

segregate for any of the following purposes:

(A) property held in trust in which a spouse or surviving spouse has a

qualifying income interest with respect to which an election has been or

will be made in whole or in part under section 2056(b)(7), 2056A or

2523(f) of the United States Internal Revenue Code of 1986 from property

with respect to which no election has been or will be made;

(B) property held in trust with respect to which a marital deduction

under section 2056 or 2523 of the United States Internal Revenue Code

would be available, by election or otherwise, from property held in

trust for persons other than the spouse or surviving spouse, so that one

or more of such separate trusts qualify for the deduction under said

sections;

(C) property held in trust with respect to which a charitable

deduction under section 2055 or 2522 of the United States Internal

Revenue Code would be available from property held in trust for persons

not described in said sections, so that one or more of such separate

trusts qualify for the deduction under said sections;

(D) property held in trust which is or would be excepted, excluded or

exempt from or under Chapter 13 (tax on generation-skipping transfers)

of the United States Internal Revenue Code from such property which is

not so excepted, excluded or exempt, so that one or more of such

separate trusts will have an inclusion ratio of zero, or so that one or

more of such separate trusts qualify for the grandchild exception under

section 1433(b)-(d) of the Tax Reform Act of 1986, as amended;

(E) property held in trust for one (of two or more beneficiaries) from

property held in trust for such other beneficiaries, so that one or more

of such separate trusts shall be a qualified subchapter S trust under

section 1361(d) of the United States Internal Revenue Code;

(F) property transferred in trust by a creator (including but not

limited to a transfer treated as made by a spouse by reason of section

2513 of the United States Internal Revenue Code) from property

transferred in trust by one or more different creators; and

(G) property transferred in trust by a creator (including but not

limited to a transfer treated as made by a spouse by reason of section

2513 of the United States Internal Revenue Code) pursuant to a disposing

instrument from property transferred by the same creator pursuant to

another disposing instrument;

(2) the trustee of an express trust may divide such trust into two or

more separate trusts, with the consent of all persons interested in the

trust but without prior court approval, for any reason which is not

directly contrary to the primary purpose of the trust; and

(3) the court having jurisdiction of an express trust, upon the

petition of the trustee or of any person interested in the trust and

upon notice to all such persons, may direct the establishment of two or

more separate trusts for any reason not directly contrary to the primary

purpose of the trust.

(b) Unless the court otherwise directs, the trusts established under

this section shall be deemed to have been established as of the

effective date of the disposing instrument; provided that the

establishment of separate trusts under subparagraph two of paragraph (a)

of this section may become effective upon the date or dates provided in

the instrument filed under paragraph (e) of this section.

(c) Except as implicit in the establishment of separate trusts

authorized by this section, the terms of the disposing instrument,

subject to modifications approved by the court, shall govern each

separate trust established hereunder, except that separate trusts for

one or more members of a class of beneficiaries may be established under

subparagraph two of paragraph (a) of this section without modification

by the court if the property held in trust is distributed to such

separate trusts for one or more members of such class on the basis of

share per stirpes, per capita, or by representation, whichever is

consistent with the terms of the disposing instrument.

(d) Unless the court otherwise directs, and except in the case of the

establishment of separate trusts under clauses (F) and (G) of

subparagraph one of paragraph (a) of this section where the original

assets remain or can be traced, the property distributed to the separate

trust shall be fairly representative of appreciation or depreciation and

shall be based upon the fair market value of the assets on the date or

dates of the distributions of such assets to the separate trusts.

(e) Separate trusts shall be established under subparagraphs one and

two of paragraph (a) of this section by an instrument or instruments in

writing, signed and acknowledged by the trustee and if under

subparagraph two of paragraph (a) of this section shall also be signed

and acknowledged by all the persons interested in the trust (or the

guardian of the property, committee, conservator, adult guardian, or

personal representative of such persons each of whom is hereby empowered

to consent thereto without prior court approval). Such instruments shall

be filed in the office of the clerk of the court having jurisdiction

over the trust; and a copy thereof shall be served on all persons

interested in the trusts (or the guardian of the property, committee,

conservator, adult guardian, or personal representative of such

persons), by registered or certified mail, return receipt requested, or

by personal delivery or upon application of the trustee in any other

manner directed by the court.

(f) The term "disposing instrument" shall mean the will, trust

agreement, instrument exercising a power of appointment or other

instrument creating such a trust or transferring property to such trust;

provided that in the case of an instrument exercising a limited or

testamentary power of appointment, the term "disposing instrument" may

also refer to the instrument creating such power (if applicable under

the circumstances).

(g) In any case where the United States Internal Revenue Code requires

that an election or other action be made or taken by the executor or if

no trustee of a trust under a will has qualified, the term "trustee" as

used in this section shall mean the executor or administrator of an

estate. In any such case, the trustee shall comply with any action

taken by the executor or administrator under this section.

(h) For the purposes of this section, the phrase "all persons

interested in the trust" shall mean all the persons upon whom service of

process would be required in a proceeding for the judicial settlement of

the account of the trustee, taking into account section three hundred

fifteen of the surrogate's court procedure act.

(i) References to sections of the United States Internal Revenue Code

shall refer to the United States Internal Revenue Code of 1986 as

amended from time to time, or to corresponding provisions of subsequent

internal revenue laws, and shall also refer to corresponding provisions

of state law.

(j) Unless otherwise provided for in the disposing instrument, the

commissions allowed to a trustee as determined under article

twenty-three of the surrogate's court procedure act, as amended from

time to time, shall not be increased by reason of the establishment of

separate trusts pursuant to subparagraph one of paragraph (a) of this

section unless the court otherwise permits an increase, provided,

however, that such trustee shall be entitled to charge the trust for any

additional reasonable and necessary expenses incurred in the

administration of such separate trusts.

(k) For purposes of subparagraphs (a)(2) and (3) of this section, a

division of a trust into two or more separate trusts to permit one or

more such trusts to be governed by article 11-A and another one or more

such trusts to be governed by 11-2.4 shall be deemed to be for a reason

which is not directly contrary to the primary purpose of the trust

unless such division is expressly prohibited by the terms of the

disposing instrument.