Article on New York’s Decanting Statute

David Restrepo (Pace University School of Law) recently published a comment entitled, New York’s Decanting Statute: Helping an Old Vintage Come to Life or Spoiling the Settlor’s Fine Wine?, 34 Pace L. Rev. 479 (2014). Provided below is the introduction of the comment:

The avid wine drinker has many tools at his disposal to maximize the experience of a wonderful bottle of wine. These tools include specially crafted glassware in different shapes and sizes, and the ever-popular wine decanter.¹ The decanter serves many functions, and its pros and cons are debatable, but one of the recognized uses is the aeration of the wine, which arguably allows a wine to quickly “come to life.”² Similar to wine, trust assets may need modification in order to realize their full potential. It might be that the trust would operate at its best if it existed for an additional period of years beyond its original purpose, or that a new trust serves the beneficiaries better by taking advantage of tax benefits.³ The year 1992 was a historic year for estate planners in New York, as a tool very similar to the wine decanter became available for the use of trust assets. The 1992 addition of section 10-6.6 of the New York Estates, Powers and Trusts Law (“NY EPTL”) marked the first state statute to allow the “pouring” of trust assets from one trust into another.⁴

Estate planning presents several challenges to attorneys and trustees who face the dilemma of serving their client’s interests by anticipating future effects on their assets. Utilizing trust decanting provisions has become a critical tool for a trustee when determining how to best serve a client’s interests for various reasons such as protection of assets from tax ramifications, or modification of existing trusts to create better utility. Acknowledging these practical utilities, decanting has left several questions unanswered: Is the decanting process a blatant slight to the traditions that New York State has held dear in the field of Trust and Estate law? Why are estate planners using a utility that currently sits in limbo as far as an Internal Revenue Service (“IRS”) determination on what the eventual tax ramifications and treatment will be? While addressing what could be a major forthcoming issue on tax treatment of decanting, this Comment explores section 10-6.6 of the NY EPTL,⁵ the history behind the amendments, and the various practical uses decanting offers to the modern estate planner. Furthermore, and most importantly, this Comment examines the overlooked clash between the New York legislature’s granting of seemingly unbridled power in trust reformation with New York’s longstanding commitment to honoring a settlor’s intent.⁶ The decanting statute and its modern use have disregarded the original intention of the statute, which was to allow estate planners to preserve the benefits of the Generation Skipping Transfer (“GST”) tax exemptions.⁷ Moreover, the reach of this statute has now placed it in complete conflict with New York’s commitment to preserving settlor intent.

The Comment examines trust decanting in four parts. Part I reviews the historical evolution of decanting statutes, first from common law roots, and later focusing on the legislative history of New York’s decanting statute. Part II briefly explains the functionality of section 10-6.6 of the NY EPTL; the “how does it work” explanation of the statute that authorizes decanting. Part III will discuss the many practical uses of the decanting statute. Finally, Part IV will transition into a discussion on how the trustee’s use of this statute not only leaves him in limbo regarding the tax treatment of his actions, but places him in a head on clash with New York’s longstanding commitment to honoring settlor intent.