New York Law (NYLE) Practice Exam

Income interests in trusts are:

1. Alienable by the income beneficiary without restriction.

2. Only transferable with the approval of the trustee.

3. Not alienable by the income beneficiary, unless otherwise provided in the trust instrument.

4. Always transferrable to another beneficiary upon request.

The correct answer is: Not alienable by the income beneficiary, unless otherwise provided in the trust instrument.

Income interests in trusts refer to the rights of beneficiaries to receive income generated from the trust assets. Generally, these interests are subject to certain legal principles in trust law regarding their transferability and alienability. The correct answer supports the idea that income interests in a trust are not inherently alienable by the income beneficiary unless the trust document itself provides for such transferability. Trust law tends to protect the rights of beneficiaries, and unless explicitly stated in the trust instrument, income beneficiaries typically cannot freely transfer their interest to another party. This can serve to maintain the intended structure of the trust and protect the interests of the original grantor as well. By contrast, the other options suggest either unrestricted transferability or conditions that are not commonly recognized in New York trust law. The requirement for the trustee's approval or the notion that the interests are always transferable undermines the general principle that these interests are often non-alienable unless explicitly permitted in the terms of the trust. This concept is crucial for understanding how trust property is managed and the rights of beneficiaries within that framework.