On January 1, 2026 New York’s enactment of the Uniform Special Deposits Act (the “Act”) promulgated by the Uniform Law Commission, codified as Sections 680 to 680-p of new Article XIII-F of the Banking Law, became effective.
As described in the report prepared by the New York City Bar Association endorsing its enactment, available at https://www.nycbar.org/reports/memo-in-support-of-the-uniform-special-deposits-act/?back=1, and as summarized in this advisory, the Act provides statutory recognition and protections for “special deposits”, a type of bank account to be used for, among other things, security deposits and escrows. The Act provides useful clarity and certainty for such accounts. A deposit that meets the statutory requirements under the Act is protected from interference by the depositor and any beneficiary of the special deposit, or any of their creditors or successors, until the contingency triggering the disbursement of the funds is met.
The Act applies only to deposits which meet the specific statutory definition for a special deposit. A deposit account is a special deposit if it is:
(1) a deposit of funds in a bank under an account agreement;
(2) for the benefit of at least two beneficiaries, one or more of which may be a depositor;
(3) denominated in a medium of exchange that is currently authorized or adopted by a domestic or foreign government;
(4) for a permissible purpose stated in the account agreement; and
(5) subject to a contingency (Banking Law § 680-d).
The parties must affirmatively “opt-in” to treatment of an account as a special deposit covered by the Act in the account agreement for the account. New York’s common law recognition of special deposits developed in case law is not abolished and may coexist with the new statutory special deposit, but parties should take advantage of the Act’s certainty by explicitly electing to opt-in to the protections of the Act.
The account must be created for a “permissible purpose” (Banking Law § 680-d(4)). A permissible purpose means a governmental, regulatory, commercial, charitable or testamentary objective of the parties stated in the account agreement. The Act includes a non-exhaustive list of permissible purposes including
(a) holding funds in escrow, including for a purchase and sale, lease, buyback, or other transactions,
(b) holding funds as a security deposit of a tenant,
(c) holding funds that may be distributed to a person as remuneration, retirement or other benefit, or compensation under a judgment, consent decree, court order or other decision of a tribunal,
(d) holding funds for distribution to a defined class after identification of class members and their interest in the funds,
(e) providing assurance with respect to an obligation created by contract, such as earnest money, to ensure a transaction closes,
(f) settling an obligation that arises in the operation of a payment system, securities settlement system, or other financial market infrastructure,
(g) providing assurance with respect to an obligation that arises in the operation of a payment system, securities settlement system, or other financial market infrastructure, or
(h) holding margin, other cash collateral, or funds that support the orderly functioning of financial market infrastructure or the performance of an obligation with respect to the infrastructure. (Banking Law § 680-a(10)).
Funds deposited after the bank or a court has determined that the account does not serve a “permissible purpose” are not protected; a special deposit established for the purpose of defrauding or evading creditors until funds are disbursed would not be a permissible purpose under the Act.
Other key aspects of the legislation are:
- creditor process, such as an order of attachment or notice of lien, with respect to a special deposit is not enforceable against the bank holding the special deposit other than with respect to an amount that the bank is then obligated to pay a beneficiary (including the depositor) at the time the process is served (Banking Law § 680-h(2)).
- A bank may not exercise a right of recoupment or set off against a special deposit except for overdraft fees, costs incurred by the bank that relate directly to the special deposit or to reverse a credit posted by the bank under circumstances warranted under other applicable law governing mistake or restitution (Banking Law § 680-j)(2)(b) to (d)).
- The depository bank may also exercise a right of recoupment or set off against funds from the special deposit that the bank has become obligated to pay that beneficiary (which would be only after the contingency occurs and the bank has knowledge of the occurrence) (Banking Law § 680-j(2)(a)).
The Act provides some important protections to encourage banks to offer special deposits to their customers. Unless otherwise agreed, a bank does not have a fiduciary duty to any person with respect to a special deposit (Banking Law § 680-k(1)). While the bank is obligated to the class of beneficiaries of a special deposit, a debtor/creditor relationship with any particular beneficiary arises only when the bank becomes obligated to pay that particular beneficiary (Banking Law § 680-k(2)).
If the account agreement requires action by the bank on the basis of a presented record, the bank is not liable for relying in good faith on the genuineness of a presented record that appears on its face to be genuine (Banking Law § 680-k(6)). Unless the account agreement provides otherwise, the bank is not required to determine whether a permissible purpose stated in the agreement continues to exist (Banking Law § 680-k(7)).
The Act sets a default rule that a special deposit terminates five years after the date the special deposit was first funded (Banking Law § 680-l(1)). Under the default rules, if the bank cannot identify or locate a beneficiary entitled to payment at the time of termination, the bank must pay the balance to the depositor or depositors as beneficiaries (Banking Law § 680-l(2)).
The Act permits the parties to an account agreement to elect the application to an account of the Act as enacted in New York and to select New York as the forum for settling a dispute arising out of the special deposit, regardless of whether the parties or transaction has a reasonable relation to the State of New York (Banking Law § 680-b).
The Act clarifies the treatment of a special deposit in the event of the bankruptcy of a depositor. No person is entitled to funds in a special deposit until the bank becomes obligated to pay a beneficiary (Banking Law § 680-g). If a depositor or beneficiary were to become subject to a case under the federal Bankruptcy Code, the Act provides greater certainty to transacting parties by providing a statutory basis to negate a claim that the special deposit is property of the bankruptcy estate or subject to a bankruptcy stay or turnover order. Funds deposited into a special deposit cannot be swept into the bankruptcy estate of the person who deposited them because the Act provides that neither a depositor nor a beneficiary has a property interest in a special deposit (Banking Law § 680-g).
By providing greater certainty on the operation of special deposits, the Act should facilitate the implementation of this useful commercial device which, as described above, has many uses for both businesses and individuals.
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If you have questions about the Uniform Special Deposit Act, please contact James Gadsden at gadsden@clm.com, (212) 238-8607 or your regular Carter Ledyard contact.
The Act as adopted by the legislature is available at https://www.nysenate.gov/legislation/bills/2025/S4323.
The Uniform Act with Prefatory Notes and Comments as approved by the Uniform Law Commission and memoranda prepared by the Uniform Law Commission describing the Act and explaining why the states should adopt the Act are available at https://www.uniformlaws.org/committees/community-home/librarydocuments?attachments=&communitykey=36c7493b-d503-40e7-a74c-018a850ef519&defaultview=&libraryentry=ed63bd69-ef7d-48cf-b8fb-018a8600c69a&libraryfolderkey=&pageindex=0&pagesize=12&search=&sort=most_recent&viewtype=row&5a583082-7c67-452b-9777-e4bdf7e1c729=eyJsaWJyYXJ5ZW50cnkiOiJlZDYzYmQ2OS1lZjdkLTQ4Y2YtYjhmYi0wMThhODYwMGM2OWEifQ%3D%3D.