Tuesday, October 31, 2006
Victoria Hasseler has recently published her Comment Trustee-Beneficiaries, Creditors, and New York's EPTL: The Surprises That Result and How the UTC Solves Them, 69 Alb. L. Rev. 1169 (2006).
Here is the introduction to her Comment:
A trust is established. Tracy Brown is both the trustee and the beneficiary. The settlor has empowered the trustee to make discretionary distributions from the trust to the beneficiary herself without any limitation, such as an ascertainable standard. Much to the dismay of creditors, this means that Tracy Brown, as the trustee-beneficiary (hereinafter "T/B"), can access the trust funds at any time, yet the funds remain protected from her creditors while held in trust. Could the New York Legislature have intended such a consequence from the seemingly benign 2003, and subsequent 2004, amendments to section 10-10.1 of the New York Estates, Powers and Trusts Law (EPTL)?
This protection against creditors occurs because the discretionary power under section 10-10.1 of the EPTL is not a general power of appointment--with the accompanying provisions for creditors--although it is tantamount to such a power. Should the Legislature act and amend the current law to prevent abuse from occurring?
This paper begins by presenting a brief background of trust law and creditor law, including the doctrine of merger and the rights of creditors, in Section II. Section III sets forth the evolution of section 10-10.1 of the EPTL. Section IV addresses the implications of the 2003 and 2004 amendments by first discussing provisions for creditors and then discussing why the discretionary power is not a power of appointment based on the definition of a power of appointment under section 10-3.1 of the EPTL; the legislative history of article 10 of the EPTL; and the statutory heading of article 10, part 10 of the EPTL. Section V presents the possible positions of the Uniform Trust Code and considers why New York should adopt versions of articles 1 and 5 of the Uniform Trust Code. Finally, Section VI suggests feasible legislative solutions for New York's current law.