Bill Text: CA AB1855 | 2015-2016 | Regular Session | Introduced
Bill Title: Uniform Trust Decanting Act.
Sponsorship: Partisan Bill (Democrat 1)
Status: (Failed) 2016-11-30 - From committee without further action. [AB1855 Detail]
Download: California-2015-AB1855-Introduced.html
BILL NUMBER: AB 1855 INTRODUCED
BILL TEXT
INTRODUCED BY Assembly Member Bonta
FEBRUARY 10, 2016
An act to add Part 9 (commencing with Section 19500) to Division 9
of the Probate Code, relating to trusts.
LEGISLATIVE COUNSEL'S DIGEST
AB 1855, as introduced, Bonta. Uniform Trust Decanting Act.
Existing law regulates trust administration and generally requires
a trustee to administer the trust according to the trust instrument.
Under existing law, a trustee may exercise specified powers without
court authorization, including the power to acquire or dispose of
property. Existing law authorizes the beneficiaries of an irrevocable
trust to compel modification of the trust upon petition to the
court, if all beneficiaries of the trust consent.
This bill would enact the Uniform Trust Decanting Act, under which
a fiduciary of an irrevocable trust may distribute the property of a
first trust to one or more 2nd trusts or modify the terms of the
first trust without the consent of the beneficiaries or approval of
the court, subject to certain exceptions. The bill would require
specified persons, including qualified beneficiaries and, if the
trust contains a determinable charitable interest, the Attorney
General, to be provided notice of the intended exercise of the
decanting power, and would authorize the court, on application by
specified persons, to, among other things, approve an exercise of the
decanting power. Among other provisions, the bill would require a
fiduciary exercising the decanting power to act in accordance with
its fiduciary duties and in accordance with the purposes of the first
trust. The bill would also specify that the decanting power does not
apply to a trust held solely for charitable purposes.
Vote: majority. Appropriation: no. Fiscal committee: yes.
State-mandated local program: no.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Part 9 (commencing with Section 19500) is added to
Division 9 of the Probate Code, to read:
PART 9. Uniform Trust Decanting Act
19500. This part may be cited as the Uniform Trust Decanting Act.
19501. For purposes of this part:
(a) "Appointive property" means the property or property interest
subject to a power of appointment.
(b) "Ascertainable standard" means a standard relating to an
individual's health, education, support, or maintenance within the
meaning of Section 2041(b)(1)(A) or Section 2514(c)(1) of Title 26 of
the United States Code and any applicable regulations.
(c) "Authorized fiduciary" means any of the following:
(1) A trustee or other fiduciary, other than a settlor, that has
discretion to distribute or direct a trustee to distribute part or
all of the principal of the first trust to one or more current
beneficiaries.
(2) A special fiduciary appointed under Section 19508.
(3) A special-needs fiduciary under Section 19512.
(d) "Beneficiary" means a person that meets one of the following
conditions:
(1) Has a present or future, vested or contingent, beneficial
interest in a trust.
(2) Holds a power of appointment over trust property.
(3) Is an identified charitable organization that will or may
receive distributions under the terms of the trust.
(e) "Charitable interest" means an interest in a trust that meets
one of the following conditions:
(1) Is held by an identified charitable organization and makes the
organization a qualified beneficiary.
(2) Benefits only charitable organizations and, if the interest
were held by an identified charitable organization, would make the
organization a qualified beneficiary.
(3) Is held solely for charitable purposes and, if the interest
were held by an identified charitable organization, would make the
organization a qualified beneficiary.
(f) "Charitable organization" means either of the following:
(1) A person, other than an individual, organized and operated
exclusively for charitable purposes.
(2) A government or governmental subdivision, agency, or
instrumentality, to the extent it holds funds exclusively for a
charitable purpose.
(g) "Charitable purpose" means the relief of poverty, the
advancement of education or religion, the promotion of health, a
municipal or other governmental purpose, or another purpose the
achievement of which is beneficial to the community.
(h) "Court" means the court in this state having jurisdiction in
matters relating to trusts.
(i) "Current beneficiary" means a beneficiary that on the date the
beneficiary's qualification is determined is a distributee or
permissible distributee of trust income or principal. The term
includes the holder of a presently exercisable general power of
appointment but does not include a person that is a beneficiary only
because the person holds any other power of appointment.
(j) "Decanting power" or "the decanting power" means the power of
an authorized fiduciary under this part to distribute property of a
first trust to one or more second trusts or to modify the terms of
the first trust.
(k) "Expanded distributive discretion" means a discretionary power
of distribution that is not limited to an ascertainable standard or
a reasonably definite standard.
(l) "First trust" means a trust over which an authorized fiduciary
may exercise the decanting power.
(m) "First trust instrument" means the trust instrument for a
first trust.
(n) "General power of appointment" means a power of appointment
exercisable in favor of a powerholder, the powerholder's estate, a
creditor of the powerholder, or a creditor of the powerholder's
estate.
(o) "Jurisdiction," with respect to a geographic area, includes a
state or country.
(p) "Person" means an individual, estate, business or nonprofit
entity, public corporation, government or governmental subdivision,
agency, or instrumentality, or other legal entity.
(q) "Power of appointment" means a power that enables a
powerholder acting in a nonfiduciary capacity to designate a
recipient of an ownership interest in, or another power of
appointment over, the appointive property. The term does not include
a power of attorney.
(r) "Powerholder" means a person in which a donor creates a power
of appointment.
(s) "Presently exercisable power of appointment" means a power of
appointment exercisable by the powerholder at the relevant time.
(1) The term includes a power of appointment exercisable only
after the occurrence of a specified event, the satisfaction of an
ascertainable standard, or the passage of a specified time only after
one of the following, respectively:
(A) The occurrence of the specified event.
(B) The satisfaction of the ascertainable standard.
(C) The passage of the specified time.
(2) The term does not include a power exercisable only at the
powerholder's death.
(t) "Qualified beneficiary" means a beneficiary that, on the date
the beneficiary's qualification is determined, satisfies one of the
following conditions:
(1) Is a distributee or permissible distributee of trust income or
principal.
(2) Would be a distributee or permissible distributee of trust
income or principal if the interests of the distributees described in
paragraph (1) terminated on that date without causing the trust to
terminate.
(3) Would be a distributee or permissible distributee of trust
income or principal if the trust terminated on that date.
(u) "Reasonably definite standard" means a clearly measurable
standard under which a holder of a power of distribution is legally
accountable within the meaning of Section 674(b)(5)(A) of Title 26 of
the United States Code and any applicable regulations.
(v) "Record" means information that is inscribed on a tangible
medium or that is stored in an electronic or other medium and is
retrievable in perceivable form.
(w) "Second trust" means either of the following:
(1) A first trust after modification under this part.
(2) A trust to which a distribution of property from a first trust
is or may be made under this part.
(x) "Second trust instrument" means the trust instrument for a
second trust.
(y) "Settlor," except as otherwise provided in Section 19524,
means a person, including a testator, that creates or contributes
property to a trust. If more than one person creates or contributes
property to a trust, each person is a settlor of the portion of the
trust property attributable to the person's contribution except to
the extent another person has power to revoke or withdraw that
portion.
(z) "Sign" means, with present intent to authenticate or adopt a
record, to do either of the following:
(1) Execute or adopt a tangible symbol.
(2) Attach to or logically associate with the record an electronic
symbol, sound, or process.
(aa) "State" means a state of the United States, the District of
Columbia, Puerto Rico, the United States Virgin Islands, or any
territory or insular possession subject to the jurisdiction of the
United States.
(ab) "Terms of the trust" means the manifestation of the settlor's
intent regarding a trust's provisions as expressed in the trust
instrument, as may be established by other evidence that would be
admissible in a judicial proceeding, or as may be established by
court order or nonjudicial settlement agreement.
(ac) "Trust instrument" means a record executed by the settlor to
create a trust or by any person to create a second trust that
contains some or all of the terms of the trust, including any
amendments.
19502. (a) Except as otherwise provided in subdivisions (b) and
(c), this part applies to an express trust that is irrevocable or
revocable by the settlor only with the consent of the trustee or a
person holding an adverse interest.
(b) This part does not apply to a trust held solely for charitable
purposes.
(c) Subject to Section 19514, a trust instrument may restrict or
prohibit exercise of the decanting power.
(d) This part does not limit the power of a trustee, powerholder,
or other person to distribute or appoint property in further trust or
to modify a trust under the trust instrument, law of this state
other than this part, common law, a court order, or a nonjudicial
settlement agreement.
(e) This part does not affect the ability of a settlor to provide
in a trust instrument for the distribution of the trust property or
appointment in further trust of the trust property or for
modification of the trust instrument.
19503. (a) In exercising the decanting power, an authorized
fiduciary shall act in accordance with its fiduciary duties,
including the duty to act in accordance with the purposes of the
first trust.
(b) This part does not create or imply a duty to exercise the
decanting power or to inform beneficiaries about the applicability of
this part.
(c) Except as otherwise provided in a first trust instrument, for
purposes of this part, the terms of the first trust are deemed to
include the decanting power.
19504. This part applies to a trust created before, on, or after
January 1, 2017, that satisfies either of the following conditions:
(a) Has its principal place of administration in this state,
including a trust whose principal place of administration has been
changed to this state.
(b) Provides by its trust instrument that it is governed by the
law of this state or is governed by the law of this state for the
purpose of any of the following:
(1) Administration, including administration of a trust whose
governing law for purposes of administration has been changed to the
law of this state.
(2) Construction of terms of the trust.
(3) Determining the meaning or effect of terms of the trust.
19505. A trustee or other person that reasonably relies on the
validity of a distribution of part or all of the property of a trust
to another trust, or a modification of a trust, under this part, law
of this state other than this part, or the law of another
jurisdiction is not liable to any person for any action or failure to
act as a result of the reliance.
19506. (a) In this section, a notice period begins on the day
notice is given under subdivision (c) and ends 59 days after the day
notice is given.
(b) Except as otherwise provided in this part, an authorized
fiduciary may exercise the decanting power without the consent of any
person and without court approval.
(c) Except as otherwise provided in subdivision (f), an authorized
fiduciary shall give notice in a record of the intended exercise of
the decanting power not later than 60 days before the exercise to all
of the following:
(1) Each settlor of the first trust, if living or then in
existence.
(2) Each qualified beneficiary of the first trust.
(3) Each holder of a presently exercisable power of appointment
over any part or all of the first trust.
(4) Each person that currently has the right to remove or replace
the authorized fiduciary.
(5) Each other fiduciary of the first trust.
(6) Each fiduciary of the second trust.
(7) The Attorney General, if subdivision (b) of Section 19513
applies.
(d) An authorized fiduciary is not required to give notice under
subdivision (c) to a qualified beneficiary who is a minor and has no
representative or to a person that is not known to the fiduciary or
is known to the fiduciary but cannot be located by the fiduciary
after reasonable diligence.
(e) A notice under subdivision (c) shall include all of the
following:
(1) A description of the manner in which the authorized fiduciary
intends to exercise the decanting power.
(2) The proposed effective date for exercise of the power.
(3) A copy of the first trust instrument.
(4) A copy of all second trust instruments.
(f) The decanting power may be exercised before expiration of the
notice period under subdivision (a) if all persons entitled to
receive notice waive the period in a signed record.
(g) The receipt of notice, waiver of the notice period, or
expiration of the notice period does not affect the right of a person
to file an application under Section 19508 that asserts either of
the following:
(1) An attempted exercise of the decanting power is ineffective
because it did not comply with this part or was an abuse of
discretion or breach of fiduciary duty.
(2) Section 19521 applies to the exercise of the decanting power.
(h) An exercise of the decanting power is not ineffective because
of the failure to give notice to one or more persons under
subdivision (c) if the authorized fiduciary acted with reasonable
care to comply with subdivision (c).
19507. (a) Notice to a person with authority to represent and
bind another person under this code or a first trust instrument has
the same effect as notice given directly to the person represented.
(b) Consent of or waiver by a person with authority to represent
and bind another person under this code or a first trust instrument
is binding on the person represented unless the person represented
objects to the representation before the consent or waiver otherwise
would become effective.
(c) A person with authority to represent and bind another person
under this code or a first trust instrument may file an application
under Section 19508 on behalf of the person represented.
(d) A settlor may not represent or bind a beneficiary under this
part.
19508. (a) On application of an authorized fiduciary, a person
entitled to notice under subdivision (c) of Section 19506, a
beneficiary, or, with respect to a charitable interest, the Attorney
General or other person that has standing to enforce the charitable
interest, the court may do any of the following:
(1) Provide instructions to the authorized fiduciary regarding
whether a proposed exercise of the decanting power is permitted under
this part and is consistent with the fiduciary duties of the
authorized fiduciary.
(2) Appoint a special fiduciary and authorize the special
fiduciary to determine whether the decanting power should be
exercised under this part and to exercise the decanting power.
(3) Approve an exercise of the decanting power.
(4) Determine that a proposed or attempted exercise of the
decanting power is ineffective because of either of the following:
(A) After applying Section 19521, the proposed or attempted
exercise does not or did not comply with this part.
(B) The proposed or attempted exercise would be or was an abuse of
the fiduciary's discretion or a breach of fiduciary duty.
(5) Determine the extent to which Section 19521 applies to a prior
exercise of the decanting power.
(6) Provide instructions to the trustee regarding the application
of Section 19521 to a prior exercise of the decanting power.
(7) Order other relief to carry out the purposes of this part.
(b) On application of an authorized fiduciary, the court may
approve either or both of the following:
(1) An increase in the fiduciary's compensation under Section
19515.
(2) A modification under Section 19517 of a provision granting a
person the right to remove or replace the fiduciary.
19509. An exercise of the decanting power shall be made in a
record signed by an authorized fiduciary. The signed record shall,
directly or by reference to the notice required by Section 19506,
identify the first trust and the second trust or trusts and state the
property of the first trust being distributed to each second trust
and the property, if any, that remains in the first trust.
19510. (a) For purposes of this section:
(1) "Noncontingent right" means a right that is not subject to the
exercise of discretion or the occurrence of a specified event that
is not certain to occur. The term does not include a right held by a
beneficiary if any person has discretion to distribute property
subject to the right to any person other than the beneficiary or the
beneficiary's estate.
(2) "Presumptive remainder beneficiary" means a qualified
beneficiary other than a current beneficiary.
(3) "Successor beneficiary" means a beneficiary that is not a
qualified beneficiary on the date the beneficiary's qualification is
determined. The term does not include a person that is a beneficiary
only because the person holds a nongeneral power of appointment.
(4) "Vested interest" means any of the following:
(A) A right to a mandatory distribution that is a noncontingent
right as of the date of the exercise of the decanting power.
(B) A current and noncontingent right, annually or more
frequently, to a mandatory distribution of income, a specified dollar
amount, or a percentage of value of some or all of the trust
property.
(C) A current and noncontingent right, annually or more
frequently, to withdraw income, a specified dollar amount, or a
percentage of value of some or all of the trust property.
(D) A presently exercisable general power of appointment.
(E) A right to receive an ascertainable part of the trust property
on the trust's termination that is not subject to the exercise of
discretion or to the occurrence of a specified event that is not
certain to occur.
(b) Subject to subdivision (c) and Section 19513, an authorized
fiduciary that has expanded distributive discretion over the
principal of a first trust for the benefit of one or more current
beneficiaries may exercise the decanting power over the principal of
the first trust.
(c) Subject to Section 19512, in an exercise of the decanting
power under this section, a second trust may not do any of the
following:
(1) Include as a current beneficiary a person that is not a
current beneficiary of the first trust, except as otherwise provided
in subdivision (d).
(2) Include as a presumptive remainder beneficiary or successor
beneficiary a person that is not a current beneficiary, presumptive
remainder beneficiary, or successor beneficiary of the first trust,
except as otherwise provided in subdivision (d).
(3) Reduce or eliminate a vested interest.
(d) Subject to paragraph (3) of subdivision (c) and Section 19513,
in an exercise of the decanting power under this section, a second
trust may be a trust created or administered under the law of any
jurisdiction and may do each of the following:
(1) Retain a power of appointment granted in the first trust.
(2) Omit a power of appointment granted in the first trust, other
than a presently exercisable general power of appointment.
(3) Create or modify a power of appointment if the powerholder is
a current beneficiary of the first trust and the authorized fiduciary
has expanded distributive discretion to distribute principal to the
beneficiary.
(4) Create or modify a power of appointment if the powerholder is
a presumptive remainder beneficiary or successor beneficiary of the
first trust, but the exercise of the power may take effect only after
the powerholder becomes, or would have become if then living, a
current beneficiary.
(e) A power of appointment described in paragraphs (1) to (4),
inclusive, of subdivision (d) may be general or nongeneral. The class
of permissible appointees in favor of which the power may be
exercised may be broader than, or different from, the beneficiaries
of the first trust.
(f) If an authorized fiduciary has expanded distributive
discretion over part but not all of the principal of a first trust,
the fiduciary may exercise the decanting power under this section
over that part of the principal over which the authorized fiduciary
has expanded distributive discretion.
19511. (a) For purposes of this section, "limited distributive
discretion" means a discretionary power of distribution that is
limited to an ascertainable standard or a reasonably definite
standard.
(b) An authorized fiduciary that has limited distributive
discretion over the principal of the first trust for benefit of one
or more current beneficiaries may exercise the decanting power over
the principal of the first trust.
(c) Under this section and subject to Section 19513, a second
trust may be created or administered under the law of any
jurisdiction. Under this section, the second trusts, in the
aggregate, shall grant each beneficiary of the first trust beneficial
interests which are substantially similar to the beneficial
interests of the beneficiary in the first trust.
(d) A power to make a distribution under a second trust for the
benefit of a beneficiary who is an individual is substantially
similar to a power under the first trust to make a distribution
directly to the beneficiary. A distribution is for the benefit of a
beneficiary if it satisfies any of the following conditions:
(1) The distribution is applied for the benefit of the
beneficiary.
(2) The beneficiary is under a legal disability or the trustee
reasonably believes the beneficiary is incapacitated, and the
distribution is made as permitted under this code.
(3) The distribution is made as permitted under the terms of the
first trust instrument and the second trust instrument for the
benefit of the beneficiary.
(e) If an authorized fiduciary has limited distributive discretion
over part but not all of the principal of a first trust, the
fiduciary may exercise the decanting power under this section over
that part of the principal over which the authorized fiduciary has
limited distributive discretion.
19512. (a) For purposes of this section:
(1) "Beneficiary with a disability" means a beneficiary of a first
trust who the special needs fiduciary believes may qualify for
governmental benefits based on disability, whether or not the
beneficiary currently receives those benefits or is an individual who
has been adjudicated legally incompetent.
(2) "Governmental benefits" means financial aid or services from a
state, federal, or other public agency.
(3) "Special needs fiduciary" means, with respect to a trust that
has a beneficiary with a disability, any of the following:
(A) A trustee or other fiduciary, other than a settlor, that has
discretion to distribute part or all of the principal of a first
trust to one or more current beneficiaries.
(B) If no trustee or fiduciary has discretion under subparagraph
(A), a trustee or other fiduciary, other than a settlor, that has
discretion to distribute part or all of the income of the first trust
to one or more current beneficiaries.
(C) If no trustee or fiduciary has discretion under subparagraphs
(A) and (B), a trustee or other fiduciary, other than a settlor, that
is required to distribute part or all of the income or principal of
the first trust to one or more current beneficiaries.
(4) "Special needs trust" means a trust the trustee believes would
not be considered a resource for purposes of determining whether a
beneficiary with a disability is eligible for governmental benefits.
(b) A special needs fiduciary may exercise the decanting power
under Section 19510 over the principal of a first trust as if the
fiduciary had authority to distribute principal to a beneficiary with
a disability subject to expanded distributive discretion if both of
the following conditions are satisfied:
(1) A second trust is a special needs trust that benefits the
beneficiary with a disability.
(2) The special needs fiduciary determines that exercise of the
decanting power will further the purposes of the first trust.
(c) In an exercise of the decanting power under this section, all
of the following rules apply:
(1) Notwithstanding paragraph (2) of subdivision (c) of Section
19510, the interest in the second trust of a beneficiary with a
disability may fulfill either of the following:
(A) Be a pooled trust as defined by Medicaid law for the benefit
of the beneficiary with a disability under Section 1396p(d)(4)(C) of
Title 42 of the United States Code.
(B) Contain payback provisions complying with reimbursement
requirements of Medicaid law under Section 1396p(d)(4)(A) of Title 42
of the United States Code.
(2) Paragraph (3) of subdivision (c) of Section 19510 does not
apply to the interests of the beneficiary with a disability.
(3) Except as affected by any change to the interests of the
beneficiary with a disability, the second trust, or if there are two
or more second trusts, the second trusts in the aggregate, shall
grant each other beneficiary of the first trust beneficial interests
in the second trusts which are substantially similar to the
beneficiary's beneficial interests in the first trust.
19513. (a) For purposes of this section:
(1) "Determinable charitable interest" means a charitable interest
that is a right to a mandatory distribution currently, periodically,
on the occurrence of a specified event, or after the passage of a
specified time and that is unconditional or will be held solely for
charitable purposes.
(2) "Unconditional" means not subject to the occurrence of a
specified event that is not certain to occur, other than a
requirement in a trust instrument that a charitable organization be
in existence or qualify under a particular provision of the United
States Internal Revenue Code of 1986 on the date of the distribution,
if the charitable organization meets the requirement on the date of
determination.
(b) If a first trust contains a determinable charitable interest,
the Attorney General has the rights of a qualified beneficiary and
may represent and bind the charitable interest.
(c) If a first trust contains a charitable interest, the second
trust or trusts may not do any of the following:
(1) Diminish the charitable interest.
(2) Diminish the interest of an identified charitable organization
that holds the charitable interest.
(3) Alter any charitable purpose stated in the first trust
instrument.
(4) Alter any condition or restriction related to the charitable
interest.
(d) If there are two or more second trusts, the second trusts
shall be treated as one trust for purposes of determining whether the
exercise of the decanting power diminishes the charitable interest
or diminishes the interest of an identified charitable organization
for purposes of subdivision (c).
(e) If a first trust contains a determinable charitable interest,
the second trust or trusts that include a charitable interest
pursuant to subdivision (c) shall be administered under the law of
this state unless any of the following occur:
(1) The Attorney General, after receiving notice under Section
19506, fails to object in a signed record delivered to the authorized
fiduciary within the notice period.
(2) The Attorney General consents in a signed record to the second
trust or trusts being administered under the law of another
jurisdiction.
(3)
The court approves the exercise of the decanting power.
(f) This part does not limit the powers and duties of the Attorney
General under law of this state other than this part.
19514. (a) An authorized fiduciary may not exercise the decanting
power to the extent the first trust instrument expressly prohibits
exercise of either of the following:
(1) The decanting power.
(2) A power granted by state law to the fiduciary to distribute
part or all of the principal of the trust to another trust or to
modify the trust.
(b) Exercise of the decanting power is subject to any restriction
in the first trust instrument that expressly applies to exercise
either of the following:
(1) The decanting power.
(2) A power granted by state law to a fiduciary to distribute part
or all of the principal of the trust to another trust or to modify
the trust.
(c) A general prohibition of the amendment or revocation of a
first trust, a spendthrift clause, or a clause restraining the
voluntary or involuntary transfer of a beneficiary's interest does
not preclude exercise of the decanting power.
(d) Subject to subdivisions (a) and (b), an authorized fiduciary
may exercise the decanting power under this part even if the first
trust instrument permits the authorized fiduciary or another person
to modify the first trust instrument or to distribute part or all of
the principal of the first trust to another trust.
(e) If a first trust instrument contains an express prohibition
described in subdivision (a) or an express restriction described in
subdivision (b), the provision shall be included in the second trust
instrument.
19515. (a) If a first trust instrument specifies an authorized
fiduciary's compensation, the fiduciary may not exercise the
decanting power to increase the fiduciary's compensation above the
specified compensation unless either of the following occurs:
(1) All qualified beneficiaries of the second trust consent to the
increase in a signed record.
(2) The increase is approved by the court.
(b) If a first trust instrument does not specify an authorized
fiduciary's compensation, the fiduciary may not exercise the
decanting power to increase the fiduciary's compensation above the
compensation permitted by this code unless either of the following
occurs:
(1) All qualified beneficiaries of the second trust consent to the
increase in a signed record.
(2) The increase is approved by the court.
(c) A change in an authorized fiduciary's compensation which is
incidental to other changes made by the exercise of the decanting
power is not an increase in the fiduciary's compensation for purposes
of subdivisions (a) and (b).
19516. (a) Except as otherwise provided in this section, a second
trust instrument may not relieve an authorized fiduciary from
liability for breach of trust to a greater extent than the first
trust instrument.
(b) A second trust instrument may provide for indemnification of
an authorized fiduciary of the first trust or another person acting
in a fiduciary capacity under the first trust for any liability or
claim that would have been payable from the first trust if the
decanting power had not been exercised.
(c) A second trust instrument may not reduce fiduciary liability
in the aggregate.
(d) Subject to subdivision (c), a second trust instrument may
divide and reallocate fiduciary powers among fiduciaries, including
one or more trustees, distribution advisors, investment advisors,
trust protectors, or other persons, and may relieve a fiduciary from
liability for an act or failure to act of another fiduciary as
permitted by law of this state other than this part.
19517. An authorized fiduciary may not exercise the decanting
power to modify a provision in a first trust instrument granting
another person power to remove or replace the fiduciary unless any of
the following occurs:
(a) The person holding the power consents to the modification in a
signed record and the modification applies only to the person.
(b) The person holding the power and the qualified beneficiaries
of the second trust consent to the modification in a signed record
and the modification grants a substantially similar power to another
person.
(c) The court approves the modification and the modification
grants a substantially similar power to another person.
19518. (a) For purposes of this section:
(1) "Grantor trust" means a trust as to which a settlor of a first
trust is considered the owner under Sections 671 to 677, inclusive,
or Section 679 of Title 26 of the United States Code.
(2) "Internal Revenue Code" means the United States Internal
Revenue Code of 1986.
(3) "Nongrantor trust" means a trust that is not a grantor trust.
(4) "Qualified benefits property" means property subject to the
minimum distribution requirements of Section 401(a)(9) of Title 26 of
the United States Code, and any applicable regulations, or to any
similar requirements that refer to Section 401(a)(9) of Title 26 of
the United States Code or the regulations.
(b) An exercise of the decanting power is subject to all of the
following limitations:
(1) If a first trust contains property that qualified, or would
have qualified but for provisions of this part other than this
section, for a marital deduction for purposes of the gift or estate
tax under the Internal Revenue Code or a state gift, estate, or
inheritance tax, the second trust instrument shall not include or
omit any term that, if included in or omitted from the trust
instrument for the trust to which the property was transferred, would
have prevented the transfer from qualifying for the deduction, or
would have reduced the amount of the deduction, under the same
provisions of the Internal Revenue Code or state law under which the
transfer qualified.
(2) If the first trust contains property that qualified, or would
have qualified but for provisions of this part other than this
section, for a charitable deduction for purposes of the income, gift,
or estate tax under the Internal Revenue Code or a state income,
gift, estate, or inheritance tax, the second trust instrument shall
not include or omit any term that, if included in or omitted from the
trust instrument for the trust to which the property was
transferred, would have prevented the transfer from qualifying for
the deduction, or would have reduced the amount of the deduction,
under the same provisions of the Internal Revenue Code or state law
under which the transfer qualified.
(3) If the first trust contains property that qualified, or would
have qualified but for provisions of this part other than this
section, for the exclusion from the gift tax described in Section
2503(b) of Title 26 of the United States Code, the second trust
instrument shall not include or omit a term that, if included in or
omitted from the trust instrument for the trust to which the property
was transferred, would have prevented the transfer from qualifying
under Section 2503(b) of Title 26 of the United States Code. If the
first trust contains property that qualified, or would have qualified
but for provisions of this part other than this section, for the
exclusion from the gift tax described in Section 2503(b) of Title 26
of the United States Code by application of Section 2503(c) of Title
26 of the United States Code, the second trust instrument shall not
include or omit a term that, if included or omitted from the trust
instrument for the trust to which the property was transferred, would
have prevented the transfer from qualifying under Section 2503(c) of
Title 26 of the United States Code.
(4) If the property of the first trust includes shares of stock in
an S-corporation, as defined in Section 1361 of Title 26 of the
United States Code and the first trust is, or but for provisions of
this part other than this section would be, a permitted shareholder
under any provision of Section 1361 of Title 26 of the United States
Code, an authorized fiduciary may exercise the power with respect to
part or all of the S-corporation stock only if any second trust
receiving the stock is a permitted shareholder under Section 1361(c)
(2) of Title 26 of the United States Code. If the property of the
first trust includes shares of stock in an S-corporation and the
first trust is, or but for provisions of this part other than this
section would be, a qualified subchapter-S trust within the meaning
of Section 1361(d) of Title 26 of the United States Code, the second
trust instrument shall not include or omit a term that prevents the
second trust from qualifying as a qualified subchapter-S trust.
(5) If the first trust contains property that qualified, or would
have qualified but for provisions of this part other than this
section, for a zero inclusion ratio for purposes of the
generation-skipping transfer tax under Section 2642(c) of Title 26 of
the United States Code, the second trust instrument shall not
include or omit a term that, if included in or omitted from the first
trust instrument, would have prevented the transfer to the first
trust from qualifying for a zero inclusion ratio under Section 2642
(c) of Title 26 of the United States Code.
(6) If the first trust is directly or indirectly the beneficiary
of qualified benefits property, the second trust instrument may not
include or omit any term that, if included in or omitted from the
first trust instrument, would have increased the minimum
distributions required with respect to the qualified benefits
property under Section 401(a)(9) of Title 26 of the United States
Code and any applicable regulations, or any similar requirements that
refer to Section 401(a)(9) of Title 26 of the United States Code or
the regulations. If an attempted exercise of the decanting power
violates the preceding sentence, the trustee is deemed to have held
the qualified benefits property and any reinvested distributions of
the property as a separate share from the date of the exercise of the
power and Section 19521 applies to the separate share.
(7) If the first trust qualifies as a grantor trust because of the
application of Section 672(f)(2)(A) of Title 26 of the United States
Code, the second trust may not include or omit a term that, if
included in or omitted from the first trust instrument, would have
prevented the first trust from qualifying under Section 672(f)(2)(A)
of Title 26 of the United States Code.
(8) In this paragraph, "tax benefit" means a federal or state tax
deduction, exemption, exclusion, or other benefit not otherwise
listed in this section, except for a benefit arising from being a
grantor trust. Subject to paragraph (9), a second trust instrument
may not include or omit a term that, if included in or omitted from
the first trust instrument, would have prevented qualification for a
tax benefit if both of the following apply:
(A) The first trust instrument expressly indicates an intent to
qualify for the benefit or the first trust instrument clearly is
designed to enable the first trust to qualify for the benefit.
(B) The transfer of property held by the first trust or the first
trust qualified, or but for provisions of this part other than this
section, would have qualified for the tax benefit.
(9) (A) Subject to paragraph (4), and except as otherwise provided
in paragraph (7), the second trust may be a nongrantor trust, even
if the first trust is a grantor trust.
(B) Subject to paragraph (4), and except as otherwise provided in
paragraph (10), the second trust may be a grantor trust, even if the
first trust is a nongrantor trust.
(10) An authorized fiduciary may not exercise the decanting power
if a settlor objects in a signed record delivered to the fiduciary
within the notice period and either of the following conditions are
satisfied:
(A) The first trust and a second trust are both grantor trusts, in
whole or in part, the first trust grants the settlor or another
person the power to cause the second trust to cease to be a grantor
trust, and the second trust does not grant an equivalent power to the
settlor or other person.
(B) The first trust is a nongrantor trust and a second trust is a
grantor trust, in whole or in part, with respect to the settlor,
unless either of the following apply:
(i) The settlor has the power at all times to cause the second
trust to cease to be a grantor trust.
(ii) The first trust instrument contains a provision granting the
settlor or another person a power that would cause the first trust to
cease to be a grantor trust and the second trust instrument contains
the same provision.
19519. (a) Subject to subdivision (b), a second trust may have a
duration that is the same as, or different from, the duration of the
first trust.
(b) To the extent that property of a second trust is attributable
to property of the first trust, the property of the second trust is
subject to any rules governing maximum perpetuity, accumulation, or
suspension of the power of alienation that apply to property of the
first trust.
19520. An authorized fiduciary may exercise the decanting power
whether or not under the first trust's discretionary distribution
standard the fiduciary would have made or could have been compelled
to make a discretionary distribution of principal at the time of the
exercise.
19521. (a) If exercise of the decanting power would be effective
under this part, except that the second trust instrument in part does
not comply with this part, the exercise of the power is effective
and the following rules apply with respect to the principal of the
second trust attributable to the exercise of the power:
(1) A provision in the second trust instrument that is not
permitted under this part is void to the extent necessary to comply
with this part.
(2) A provision required by this part to be in the second trust
instrument, which is not contained in the instrument, is deemed to be
included in the instrument to the extent necessary to comply with
this part.
(b) If a trustee or other fiduciary of a second trust determines
that subdivision (a) applies to a prior exercise of the decanting
power, the fiduciary shall take corrective action consistent with the
fiduciary's duties.
19522. (a) For purposes of this section:
(1) "Animal trust" means a trust or an interest in a trust created
to provide for the care of one or more animals.
(2) "Protector" means a person appointed in an animal trust to
enforce the trust on behalf of the animal or, if no such person is
appointed in the trust, a person appointed by the court for that
purpose.
(b) The decanting power may be exercised over an animal trust that
has a protector to the extent the trust could be decanted under this
part if each animal that benefits from the trust were an individual,
if the protector consents in a signed record to the exercise of the
power.
(c) A protector for an animal has the rights under this part of a
qualified beneficiary.
(d) Notwithstanding any other provision of this part, if a first
trust is an animal trust, in an exercise of the decanting power, the
second trust shall provide that trust property may be applied only to
its intended purpose for the period the first trust benefited the
animal.
19523. A reference in this code to a trust instrument or terms of
the trust includes a second trust instrument and the terms of the
second trust.
19524. (a) For purposes of the law of this state other than this
part and subject to subdivision (b), a settlor of a first trust is
deemed to be the settlor of the second trust with respect to the
portion of the principal of the first trust subject to the exercise
of the decanting power.
(b) In determining settlor intent with respect to a second trust,
the intent of a settlor of the first trust, a settlor of the second
trust, and the authorized fiduciary may be considered.
19525. (a) Except as otherwise provided in subdivision (c), if
exercise of the decanting power was intended to distribute all the
principal of the first trust to one or more second trusts,
later-discovered property belonging to the first trust and property
paid to or acquired by the first trust after the exercise of the
power is part of the trust estate of the second trust or trusts.
(b) Except as otherwise provided in subdivision (c), if exercise
of the decanting power was intended to distribute less than all the
principal of the first trust to one or more second trusts,
later-discovered property belonging to the first trust or property
paid to or acquired by the first trust after exercise of the power
remains part of the trust estate of the first trust.
(c) An authorized fiduciary may provide in an exercise of the
decanting power or by the terms of a second trust for disposition of
later-discovered property belonging to the first trust or property
paid to or acquired by the first trust after exercise of the power.
19526. A debt, liability, or other obligation enforceable against
property of a first trust is enforceable to the same extent against
the property when held by the second trust after exercise of the
decanting power.
19527. In applying and construing this uniform act, consideration
shall be given to the need to promote uniformity of the law with
respect to its subject matter among states that enact it.
19528. This part modifies, limits, or supersedes the federal
Electronic Signatures in Global and National Commerce Act (15 U.S.C.
Sec. 7001 et seq.), but does not modify, limit, or supersede Section
101(c) of that act (15 U.S.C. Sec. 7001(c)) or authorize electronic
delivery of any of the notices described in Section 103(b) of that
act (15 U.S.C. Sec. 7003(b)).
19529. The provisions of this part are severable. If any
provision of this part or its application is held invalid, that
invalidity shall not affect other provisions or applications that can
be given effect without the invalid provision or application.
