The New York State legislature has voted to amend New York Law and change the rules governing payment of interest on a delayed distribution of a cash legacy from an Estate.
Under the prior law, interest was only payable on a cash legacy that was not paid within seven months of the appointment of a fiduciary, and only if a demand was made upon the fiduciary prior to commencing a proceeding in the Surrogate's Court to compel payment of that distribution. The prior statute fixed interest at 6% starting seven months from the time that Letters Testamentary, including Preliminary Letters Testamentary, are granted and permits the Court to award interest at the legal or judgment rate of 9% as set forth in the CPLR, if the delay in paying legacies was unreasonable.
Under the new law: 1) The interest rate will be pegged to the "Federal Funds" rate so as to ensure that the statutory rate is neither too high nor too low; 2) Unless otherwise provided for in the terms of the Will or Trust, such outright cash legacies are to be paid no less than seven months from the time Letters Testamentary (including Preliminary or Temporary Letters) are issued, with interest attaching automatically thereafter; and 3) Any actual interest paid will be deductible by the Estate, and considered income for the beneficiary.
Given this new change, when undertaking your Estate planning please consider if you would like to address this issue of interest regarding such cash bequest. Alternatively, if you are appointed as a fiduciary, be advised that the legislature has changed the law, and now requires that interest be paid on a delayed cash legacy.