EPTL 7-1.6 Application of principal to income beneficiary
Statute
EPTL 7-1.6 Application of principal to income beneficiary
(a) Notwithstanding any contrary provision of law, the court having jurisdiction of an express trust, heretofore created or declared, to receive the income from property and apply it to the use of or pay it to any person, unless otherwise provided in the disposing instrument, may in its discretion make an allowance from principal to any income beneficiary whose support or education is not sufficiently provided for, to the extent that such beneficiary is indefeasibly entitled to the principal of the trust or any part thereof or, in case the income beneficiary is not entitled to the principal of the trust or any part thereof, to the extent that all persons beneficially interested in the trust are adult and competent and consent thereto in writing; provided that the court, after a hearing on notice to all those beneficially interested in the trust in such manner as the court may direct, is satisfied that the original purpose of the creator of the trust cannot be carried out and that such allowance effectuates the intention of the creator.
(b) Notwithstanding any contrary provision of law, the court having jurisdiction of an express trust, hereafter created or declared, to receive income from property and apply it to the use of or pay it to any person, unless otherwise provided in the disposing instrument, may in its discretion make an allowance from principal to any income beneficiary whose support or education is not sufficiently provided for, whether or not such person is entitled to the principal of the trust or any part thereof; provided that the court, after a hearing on notice to all those beneficially interested in the trust in such manner as the court may direct, is satisfied that the original purpose of the creator of the trust cannot be carried out and that such allowance effectuates the intention of the creator.
(c) In the event that an income beneficiary to whom an allowance is made, as provided in this section, is or becomes entitled to a share of the principal of the trust, such allowance, without interest thereon, shall be a charge upon such share.
(d) If the application or the possibility of the application of this section to any trust would reduce or eliminate a charitable deduction otherwise available to any person or entity under the income tax, gift tax or estate tax provisions of the internal revenue code, the provisions of this section shall not apply to such trust.
(e) A supplemental needs trust which conforms to the provisions of [7-1.12](/statutes/ny/eptl/7/1/12/) of this article shall be construed in accordance with the provisions of that section.
Notes
Subsection (a) v. (b)
Scope
Subsections (a) and (b) of EPLT 7-1.6 are similar. They are different in the extent to which the grantor is entitled to the principal of the trust.
In subsection (a), there are two scenarios:
- The court can make an allowance from the principal to the income beneficiary to the extent to which the beneficiary is indefeasibly entitled to trust’s principal.
- Even if the income beneficiary is not entitled to any of the principal, the court can make an allowance of the principal to the income beneficiary to the extent that all beneficiaries are (1) adult, (2) competent, and (3) agree in writing.
Subsection (b) is broader because it doesn’t matter whether the income beneficiary is entitled to any of the trust’s principal. The court can make an allowance from the principal to the income beneficiary upon a hearing on notice to the beneficiaries.
The following table highlights the different language in subsections (a) and (b):
| (a) | (b) |
|---|---|
| Notwithstanding any contrary provision of law, the court having jurisdiction of an express trust, heretofore created or declared, to receive the income from property and apply it to the use of or pay it to any person, unless otherwise provided in the disposing instrument, may in its discretion make an allowance from principal to any income beneficiary whose support or education is not sufficiently provided for, to the extent that such beneficiary is indefeasibly entitled to the principal of the trust or any part thereof or, in case the income beneficiary is not entitled to the principal of the trust or any part thereof, to the extent that all persons beneficially interested in the trust are adult and competent and consent thereto in writing; provided that the court, after a hearing on notice to all those beneficially interested in the trust in such manner as the court may direct, is satisfied that the original purpose of the creator of the trust cannot be carried out and that such allowance effectuates the intention of the creator. | Notwithstanding any contrary provision of law, the court having jurisdiction of an express trust, hereafter created or declared, to receive income from property and apply it to the use of or pay it to any person, unless otherwise provided in the disposing instrument, may in its discretion make an allowance from principal to any income beneficiary whose support or education is not sufficiently provided for, whether or not such person is entitled to the principal of the trust or any part thereof; provided that the court, after a hearing on notice to all those beneficially interested in the trust in such manner as the court may direct, is satisfied that the original purpose of the creator of the trust cannot be carried out and that such allowance effectuates the intention of the creator. |
Effective Date
EPTL 7-1.6(a) to all trusts, regardless of when they were created; in contrast, EPTL 7-1.6(b) applies only to trusts created after June 1, 1966. Matter of Escher, 94 Misc. 2d 952 (Surr. Ct. Bronx Co. 1978), affd 75 A.D.2d 531 (1st Dept. 1980), affd 52 N.Y.2d 1006 (1981). See the quote from Hoelzer v. Blum, which applies this rule.
Court Will Not Use EPTL 7-1.6(a) on SNT
In Hoelzer v. Blum, 462 N.Y.S.2d 684, 93 A.D.2d 605 (1983), the Appellate Division, Second Department, refused to use EPTL 7-1.6(a) to force a trustee to invade a trust for a beneficiary who needs public assistance:
EPTL 7-1.6, entitled “Application of principal to income beneficiary”, empowers our courts to invade a trust corpus for the maintenance, support or education of an income beneficiary, absent such authority in the instrument. Prior to the enactment of the statute, courts were powerless to invade the corpus of a testamentary trust (Matter of Sullard, 247 App Div 761).
The statute empowers a court, under certain circumstances, to utilize trust principal and requires any allowance made to be charged upon the share of the income beneficiary in the event he receives a portion of the trust principal ( EPTL 7-1.6, subd [c]). The statute reads, in part, as follows:
Ҥ 7-1.6 Application of principal to income beneficiary
“(a) Notwithstanding any contrary provision of law, the court having jurisdiction of an express trust, heretofore created or declared, to receive the income from property and apply it to the use of or pay it to any person, unless otherwise provided in the disposing instrument, may in its discretion make an allowance from principal to any income beneficiary whose support or education is not sufficiently provided for, to the extent that such beneficiary is indefeasibly entitled to the principal of the trust or any part thereof or, in case the income beneficiary is not entitled to the principal of the trust or any part thereof, to the extent that all persons beneficially interested in the trust are adult and competent and consent thereto in writing; provided that the court, after a hearing on notice to all those beneficially interested in the trust in such manner as the court may direct, is satisfied that the original purpose of the creator of the trust cannot be carried out and that such allowance effectuates the intention of the creator.
“(b) Notwithstanding any contrary provision of law, the court having jurisdiction of an express trust, hereafter created or declared, to receive income from property and apply it to the use of or pay it to any person, unless otherwise provided in the disposing instrument, may in its discretion make an allowance from principal to any income beneficiary whose support or education is not sufficiently provided for, whether or not such person is entitled to the principal of the trust or any part thereof; provided that the court, after a hearing on notice to all those beneficially interested in the trust in such manner as the court may direct, is satisfied that the original purpose of the creator of the trust cannot be carried out and that such allowance effectuates the intention of the creator.”
Under subdivision (b), the broader of the two subdivisions, an allowance from trust principal for an income beneficiary’s support can be made if it is not sufficiently provided for, with or without the written consent of the trust beneficiaries. However that may be, EPTL 7- 1.6 (subd [b]) is limited to trusts created or declared after June 1, 1966 (see Rohan, Practice Commentary, McKinney’s Cons Laws of NY, Book 17B, EPTL 7-1.6, p 82, 1982-1983 Pocket Part; Matter of Damon, 71 AD2d 916; Matter of Escher, 94 Misc 2d 952, affd 75 AD2d 531, affd 52 NY2d 1006). Since David Reichenbacher’s testamentary trust was created prior to June 1, 1966, our courts are powerless to employ EPTL 7-1.6 (subd [b]) to the corpus of the subject trust and any application to utilize the principal of that trust for Norma’s behalf would necessarily have to be made pursuant to EPTL 7-1.6 (subd [a]).
EPTL 7-1.6 (subd [a]) is to be contrasted with subdivision (b) thereof in that it is applicable to all instruments without regard to their effective dates. Subdivision (a) authorizes a court after a hearing on notice to all interested parties to make an allowance from principal to an income beneficiary for the latter’s education or support if the court finds that the income beneficiary’s education or support is not sufficiently provided for. Where the income beneficiary is indefeasibly entitled to the principal of the trust, not applicable here, the court may invade the corpus to the extent of the income beneficiary’s share. Where the income beneficiary is entitled to no part of the trust corpus, the court may invade the principal of the trust to the extent that “all persons beneficially interested in the trust are adult and competent and consent thereto in writing”. If anything is clear from this record it is the fact that Norma Reichenbacher’s sisters, the trust beneficiaries, are not prepared to consent to an invasion of the trust corpus to any extent whatsoever. That being so, it follows that our courts are without the power to convert the trust corpus into an "available resource" of Norma Reichenbacher for eligibility purposes. Consequently, the trustee cannot be faulted for not applying to the Surrogate for an order of that court invading the principal of the trust set up for Norma and it was unreasonable for the State commissioner to condition any future application for medical assistance on “a bona fide effort . . . to obtain the principal of the trust for [Norma’s] maintenance and care”.
Hoelzer leaves open whether a court can use EPTL 7-1.6(b) to force a trustee of a trust created after June 1, 1966 to invade a trust for a beneficiary who needs public assistance.
Hoelzer echoes Matter of Escher, where the Bronx Surrogate’s Court refused to apply EPTL 7-1.6(a) because the beneficiaries did ot consent and held that EPTL 7-1.6(b) didn’t apply to the trust. The Bronx Surrogate’s Court wrote:
The provisions of EPTL 7-1.6 are of no avail to the objectant. By its express terms EPTL 7-1.6 (subd [a]) may be applied retroactively but an invasion of principal is only authorized upon the written consent of all persons beneficially interested in the trust. No such consents are forthcoming from the remaindermen, all of whom fall into the category of parties beneficially interested in the trust. Pursuant to EPTL 7-1.6 (subd [b]) invasion of principal is permissible without the consent of all interested parties but, by its express terms, may not be applied to trusts created prior to its effective date. The effective date of EPTL 7-1.6 is September 1, 1967 (L 1966, ch 952) and the effective date of the predecessor statutes was June 1, 1966 (L 1938, ch 377, as amd by L 1965, ch 699; Real Property Law, § 103-a; Personal Property Law, § 15-a; Matter of Harold, 87 Misc 2d 1001). The right of the objectant to relief, if any, must accordingly be found within the terms of the instrument itself.
EPTL 7-1.6(d) states that this statute will not apply to SNTs created under EPTL 7-1.12, but this rule leaves open whether EPTL 7-1.6(b) applies to a common law Escher SNT.
EPTL 7-1.6 & MAPT
A Medicaid Asset Protection Trust should have a clause that opts out of EPTL 7-1.6
[Updated 8/22/2021]