I'm the trustee of a marital trust created for my client's late husband's surviving spouse, who is the sole income and principal beneficiary. I'm planning to terminate the trust and distribute its entire corpus -- including a one-quarter undivided leasehold interest worth well over $1 million -- directly to her, with no payment involved. Does that distribution trigger New York's Real Property Transfer Gains Tax?

Plain-English summary

This tax no longer exists. New York's Real Property Transfer Gains Tax (former Article 31-B of the Tax Law) was a 10% tax on the GAIN from transferring New York real property where consideration was $1 million or more. It was repealed for any transfer occurring on or after June 15, 1996. This 1992 opinion is preserved here for historical and research value, not as current law.

John L. Eastman was trustee of a marital trust created under Article NINTH of S. Joseph Tankoos, Jr.'s 1976 will, for the benefit of his surviving spouse, Catherine M. Tankoos. Under the trust's terms, all of its income went to Mrs. Tankoos during her life, she held a general testamentary power of appointment over the entire principal (letting her direct where it goes at her death, even to her own estate), and the trustee had broad discretion to pay her all or any part of the principal at any time, effectively ending the trust whenever appropriate. The trust's assets included a one-quarter undivided interest in a long-term ground lease on which the Sunrise Mall shopping center (in Nassau County) is built, plus a related one-quarter partnership interest in the joint venture managing the mall. Eastman planned to seek a Surrogate's Court decree approving termination of the trust and distribution of its entire corpus -- including this leasehold interest, whose fair market value would substantially exceed $1 million -- directly to Mrs. Tankoos, with no payment or consideration involved.

The Department confirmed that a trust distribution of real property is, technically, a "transfer of real property" under the gains tax's very broad statutory definition (former § 1440.7), which covers essentially any method of conveying an interest, including a trust distribution. But the exemption for a "mere change of identity or form of ownership" (former § 1443.5) applied squarely here: because Mrs. Tankoos already held the ENTIRE beneficial interest in the trust's principal (as the sole beneficiary with both the income right and the power of appointment over everything), distributing the trust's real property to her didn't change who actually, beneficially owned it -- it just moved legal title from the trust vehicle to the person who already owned the underlying economic interest. The Department noted this conclusion was consistent with an earlier 1983 Counsel opinion letter reaching the same result for a sole-beneficiary trust distribution.

What this means for you

Trustees terminating a trust and distributing real property to its sole beneficiary

Under this now-repealed tax, winding up a trust and handing its real property directly to the one person who already owned 100% of the trust's beneficial interest wasn't a taxable "sale" in substance -- it qualified as an exempt mere change of identity, regardless of the property's value.

Estate and trust attorneys structuring marital trust terminations

This opinion is a clean, simple template for the mere-change analysis in the trust-termination context: the key fact is that the recipient already held the entire beneficial interest before the distribution, not the size of the distribution or the absence of consideration by itself.

Accountants reconstructing pre-1996 marital trust terminations involving real estate

If you're researching the gains-tax history of a trust distribution like this one, this opinion (and the 1983 Counsel opinion letter it cites) are the key authorities establishing that no gains tax was due on a sole-beneficiary trust termination distribution.

Common questions

Q: Does this trust-termination exemption still matter today?
A: Not under this specific tax -- it was repealed for transfers on or after June 15, 1996. Current New York real estate taxes have their own separate rules for trust distributions.

Q: Would the answer have been different if there were multiple beneficiaries splitting the property?
A: Very likely yes for at least part of the value -- the mere-change exemption in these opinions consistently turns on whether beneficial ownership actually changes; if a distribution shifted value away from one beneficiary's existing share toward another's, that shifted portion would typically be taxable (as in the trust-liquidation aggregation cases involving multiple beneficiaries).

Q: Did the lack of any payment for the distribution matter to the outcome?
A: The lack of consideration is consistent with (and typical of) a mere-change transaction, but the Department's actual legal basis for the exemption was that beneficial ownership didn't change -- not simply that no money changed hands.

Q: Can another trustee terminating a similar sole-beneficiary trust rely on this exact ruling?
A: No, apart from the repeal -- an Advisory Opinion binds the Department only as to the petitioner and facts presented, though the underlying "sole beneficiary = mere change" principle traces back to a 1983 Counsel opinion letter that reflected a more general, longstanding Department position during the tax's lifespan.

Citations and references

Statutes and regulations:

• former Tax Law § 1441 and § 1443.1 (the gains tax: 10% of gain on NY real property transfers with consideration of $1 million or more)
• former Tax Law § 1440.7 (broad definition of "transfer of real property": any method, including but not limited to sale, exchange, assignment, surrender, trust indenture, and other conveyances)
• former Tax Law § 1443.5 (exemption for a transfer that is a mere change of identity or form of ownership or organization, with no change in beneficial interest)
• Opinion Letter of Counsel to the Department of Taxation and Finance, August 8, 1983 (establishing that a transfer of real property from a trust to its sole beneficiary, who already owns 100% of the trust's beneficial interest, does not result in a change in beneficial interest and is exempt as a mere change of identity)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_prop_tran_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_property/a92_1r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-92(1) - R
Real Property
Transfer Gains Tax
February 18, 1992

STATE OF NEW YORK
COMMISSIONER 0F TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M9l1226A

On December 26, 1991, a Petition for Advisory Opinion was received from John L. Eastman,
Trustee, Eastman and Eastman, 39 West 54th Street, New York, New York 10019.
The issue raised by Petitioner, John L. Eastman, Trustee, is whether the distribution from a
testamentary trust of real property to a beneficiary will be subject to the Real Property Transfer Gains
Tax (hereinafter the "gains tax").
Petitioner is the current trustee of a testamentary trust created on September 20, 1976 upon
the death of S. Joseph Tankoos, Jr. Article NINTH of decedent's will created a pecuniary formula
marital trust for the benefit of his surviving spouse, Catherine M. Tankoos. The terms of Article
NINTH provided that Petitioner would pay the entire income of the trust to Mrs. Tankoos during her
life, and upon her death, pay over the principal "to such persons or corporations, in such amounts
or proportions and upon such estates, whether outright or in further trust, as my said wife alone and
in all events shall by her Last Will and Testament designate and appoint, whether in favor of her own
estate or otherwise." Thus, decedent's surviving spouse was given a general testamentary power of
appointment over the trust principal.
Article NINTH also gave Petitioner broad invasion powers to pay over to decedent's wife
such amounts of the principal of the trust (up to and including all of the principal thereof, thereby
terminating the trust) as the Trustees shall determine without any duty to take into consideration
other resources or other income of the surviving spouse.
The decedent's assets available to fund the marital trust for the benefit of his wife included
a one-quarter undivided interest in the long-term lease of real property in Nassau County in the State
of New York upon which the Sunrise Mall shopping center is located. Decedent also owned a one­
quarter undivided partnership interest in a joint venture in the management and operation of the
Sunrise Mall. In accordance with the terms of Article NINTH of decedent's Will, his executors
conveyed and assigned one half of each of these interests to the trust created under Article NINTH
for the benefit of the decedent's spouse.
Petitioner is contemplating the distribution of all of the trust corpus to the surviving spouse
beneficiary, thereby terminating the trust. Petitioner contemplates submitting a judicial accounting
of his proceedings to the Surrogate's Court of New York County and seeking a judicial decree
approving the distribution of the entire corpus, including the one-quarter undivided leasehold interest
to the decedent's spouse. The expected fair market value of that interest at the time of the distribution
will be substantially in excess of $1,000,000. There will be no consideration for the distribution.

-2­
TSB-A-92(1) - R
Real Property
Transfer Gains Tax
February 18, 1992
Pursuant to Sections 1441 and 1443.1 of the Tax law and Section 590.1 of the Gains Tax
Regulations the gains tax is a ten percent tax on the gain derived from the transfer of real property,
which includes the acquisition or transfer of a controlling interest in any entity with an interest in real
property, where the property is located in New York State and where the consideration for the
transfer is one million dollars or more.
Section 1440.7 of the Tax Law provides, in part, that "7. 'transfer of real property' means the
transfer or transfers of any interest in real property by any method, including but not limited to sale,
exchange, assignment, surrender, mortgage foreclosure, transfer in lieu of foreclosure, option, trust
indenture, taking by eminent domain, conveyance upon liquidation or by a receiver or acquisition
of a controlling interest in any entity with an interest in real property."
Further, Section 1443.5 of the Tax Law provides, that a total or partial exemption from the
gains tax shall be allowed "If transfer of real property, however effected, consists of a mere change
of identity or form of ownership or organization, where there is no change in beneficial interest."
The transfer of real property from a trust to the sole beneficiary who owns a 100% interest
in the principal of the trust does not result in a change in the beneficial interest in the property. Such
transfer is exempt from the gains tax as a mere change of identity or form of ownership or
organization. (See Opinion Letter of Counsel to the Dept of Taxn & Fin, August 8, 1983.)
Accordingly, while Petitioner's distribution of all of the trust's interest in real property to the
beneficiary of the trust is a transfer of real property pursuant to Section 1440.7 of the Tax Law, such
transfer is not subject to gains tax pursuant to Section 1443.5 of the Tax Law since such transfer
consists of a mere change of identity or form of ownership or organization, where there is no change
in beneficial interest.

DATED: February 18, 1992

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.