Trust Terms Trump Decanting Statute: New York County Surrogate’s Court Adopts Mclaughlin & Stern Report In Precedent Setting Hoppenstein Case
Mary Croly, Esq, and Charles Bryan Baron, Esq., partners at McLaughlin & Stern, LLP, recently prepared a report for the New York County Surrogate’s Court regarding the New York Estates, Powers and Trust Law 10-6.6 decanting provision. In Matter of Hoppenstein, the Settlor transferred a $10 million life insurance policy into an irrevocable trust in which his children were equal discretionary beneficiaries. The trust contained a provision allowing principal distributions for one or more beneficiaries, to the exclusion of others. The trust specifically allowed the distribution of trust principal to a trust created for the benefit of a beneficiary.
After a dispute with one of his daughters, Dr. Hoppenstein wished to remove her as a beneficiary. The independent trustee of the life insurance trust accomplished this by decanting the life insurance policy to another trust which excluded the estranged daughter, her husband and her children from the list of beneficiaries of the new trust. In 2015, Dr. Hoppenstein died and the Trustees prepared to distribute the $10 million to the beneficiaries of the new trust, to the exclusion of the estranged daughter.
The estranged daughter petitioned the New York County Surrogate’s Court against her removal as beneficiary of the life insurance trust, arguing that the decanting was invalid because the trustee did not follow the procedures set forth in EPTL 10-6.6 for decanting. The New York County Surrogate’s Court disagreed (following the conclusions and reasoning of the report), holding that if a trust sets forth a method by which decanting takes place and the trustee follows that method, the terms of the trust trump those of EPTL 10-6.6. Additionally, (again following the report) the Court noted, for the first time in a New York reported decision, that EPTL 10-6.6(k) specifically authorizes a trustee to decant pursuant to the terms of the trust and not in accordance with the terms of the New York decanting statute. Matter of Hoppenstein 2017 N.Y. Misc. LEXIS 1707, 2017 NY Slip Op 30940(U)