The New York State Bankers Association is considering proposing laws that would make the state more friendly to trust companies.
While New York is home to some of the country's largest trustees, including Chase Manhattan Corp., J.P. Morgan & Co., and U.S. Trust Co., the state does not offer some of the newfangled trust laws that others, including Alaska, Delaware, Idaho, and South Dakota, have recently adopted.
But the New York State Bankers Association is now looking to change that, said William Bosies, a group vice president for the trade group. It wants to make New York's laws "fully up-to-date, fully competitive with the trust law in other states," he said.
One issue is a New York law that requires trusts to terminate after a set number of years. The statute, known as the rule against perpetuities, is rooted in English common law originally designed to free property held in trust by the landed gentry.
Several states have recently abolished their laws against perpetuity and now allow trusts to exist until their beneficiaries' last descendants die. At that point, the remaining assets go to the state, or to a specified entity, such as a charity.
"If New York wants to stay competitive, it has to repeal the rule against perpetuity," said Jonathan G. Blattmachr, a partner of the New York law firm Milbank, Tweed, Hadley & McCloy.
An estates attorney who drafted Alaska's trust law, Mr. Blattmachr was a speaker at a trust conference last week sponsored by the American Bankers Association and the Bank Marketing Association in New York.
Attorneys have figured out ways to draft trusts in New York that last up to 120 years. But the New York State Bankers Association may suggest removing the law against perpetuities altogether.
It is examining the issue as part of a broader study to update New York trust law, Mr. Boises said. The association has no concrete plans to present a proposal to the state's legislature this session, but is not ruling out that possibility.
Perpetual trusts, also known as dynasty trusts, are attractive to wealthy people because of their tax shelters. When a trust matures, its assets are transferred to its beneficiary and become subject to estate taxes when the beneficiary dies.
Assets in a perpetual trust are shielded from estate taxes, leaving more money for a family's younger generations.
"We have a number of big trusts terminating right now in favor of octogenarians, just in time to become part of their estates" and be taxed, said Mr. Blattmachr.
Even if New York abolished its perpetuity prohibition, the state would not be totally on par with Alaska, Delaware, and South Dakota. Unlike those states, New York has an income tax, which would be levied on returns in perpetual trusts.
Nevertheless, removing the law against perpetuity is a good idea, said James E. Hughes, another New York trust and estates attorney.
"Let people choose how long they want their trusts to last," Mr. Hughes said, adding that the law is an "antique."
But Mr. Bosies said there are modern, basic reasons for keeping the rule. "One question we're asking is 'Do you really want to have property locked up for 900 years?'" he said.
In states that permit perpetuity, provisions can be made for real estate to ensure that ownership of land is not locked up in trusts.
In addition to examining whether to keep the law against perpetuity, the New York State Bankers Association is looking at the state's principal and income laws, hoping to give more discretion to trustees over what percentage of assets and income return can be given to beneficiaries.
Mr. Bosies said current law does not address the use of derivatives contracts in trust accounts, which can be considered principal as well as sources of income.