N.Y. Lien Law 72 – Diversion of trust funds
§ 72. Diversion of trust funds. 1. Any transaction by which any trust asset is paid, transferred or applied for any purpose other than a purpose of the trust as stated in subdivision one or subdivision two of section seventy-one, before payment or discharge of all trust claims with respect to the trust, is a diversion of trust assets, whether or not there are trust claims in existence at the time of the transaction, and if the diversion occurs by the voluntary act of the trustee or by his consent such act or consent is a breach of trust.
Terms Used In N.Y. Lien Law 72
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Beneficiary: A person who is entitled to receive the benefits or proceeds of a will, trust, insurance policy, retirement plan, annuity, or other contract. Source: OCC
- Trustee: A person or institution holding and administering property in trust.
Nothing in this article affects the rights of a holder in due course of a negotiable instrument or of a purchaser in good faith for value and without notice that a transfer to him is a diversion of trust assets.
2. Trust assets shall not be levied upon or subject to a restraining notice issued pursuant to § 5222 of the civil practice law and rules as the individual property of the trustee.
3. In any action or proceeding in which it is sought to apply trust assets for a purpose other than a purpose of the trust as stated in subdivision one or subdivision two of section seventy-one
(a) it shall be the duty of the trustee, if he is a party, to defend the trust against such application, and if he knows of the action or proceeding but is not a party, to make application for intervention therein for the purpose of defending the trust;
(b) any beneficiary of the trust having a trust claim may intervene in the action or proceeding to defend the trust against such application.