California Legislature—2015–16 Regular Session

Assembly BillNo. 1855


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:

P2    1

SECTION 1.  

Part 9 (commencing with Section 19500) is added
2to Division 9 of the Probate Code, to read:

3 

4PART 9.  Uniform Trust Decanting Act

5

 

6

19500.  

This part may be cited as the Uniform Trust Decanting
7Act.

8

19501.  

For purposes of this part:

9(a) “Appointive property” means the property or property
10interest subject to a power of appointment.

11(b) “Ascertainable standard” means a standard relating to an
12individual’s health, education, support, or maintenance within the
13meaning of Section 2041(b)(1)(A) or Section 2514(c)(1) of Title
1426 of the United States Code and any applicable regulations.

15(c) “Authorized fiduciary” means any of the following:

16(1) A trustee or other fiduciary, other than a settlor, that has
17discretion to distribute or direct a trustee to distribute part or all
18of the principal of the first trust to one or more current
19beneficiaries.

20(2) A special fiduciary appointed under Section 19508.

21(3) A special-needs fiduciary under Section 19512.

22(d) “Beneficiary” means a person that meets one of the following
23conditions:

24(1) Has a present or future, vested or contingent, beneficial
25interest in a trust.

26(2) Holds a power of appointment over trust property.

27(3) Is an identified charitable organization that will or may
28receive distributions under the terms of the trust.

29(e) “Charitable interest” means an interest in a trust that meets
30 one of the following conditions:

31(1) Is held by an identified charitable organization and makes
32the organization a qualified beneficiary.

P3    1(2) Benefits only charitable organizations and, if the interest
2were held by an identified charitable organization, would make
3the organization a qualified beneficiary.

4(3) Is held solely for charitable purposes and, if the interest were
5held by an identified charitable organization, would make the
6organization a qualified beneficiary.

7(f) “Charitable organization” means either of the following:

8(1) A person, other than an individual, organized and operated
9exclusively for charitable purposes.

10(2) A government or governmental subdivision, agency, or
11instrumentality, to the extent it holds funds exclusively for a
12charitable purpose.

13(g) “Charitable purpose” means the relief of poverty, the
14advancement of education or religion, the promotion of health, a
15municipal or other governmental purpose, or another purpose the
16achievement of which is beneficial to the community.

17(h) “Court” means the court in this state having jurisdiction in
18matters relating to trusts.

19(i) “Current beneficiary” means a beneficiary that on the date
20the beneficiary’s qualification is determined is a distributee or
21permissible distributee of trust income or principal. The term
22includes the holder of a presently exercisable general power of
23appointment but does not include a person that is a beneficiary
24only because the person holds any other power of appointment.

25(j) “Decanting power” or “the decanting power” means the
26power of an authorized fiduciary under this part to distribute
27property of a first trust to one or more second trusts or to modify
28the terms of the first trust.

29(k) “Expanded distributive discretion” means a discretionary
30power of distribution that is not limited to an ascertainable standard
31or a reasonably definite standard.

32(l) “First trust” means a trust over which an authorized fiduciary
33may exercise the decanting power.

34(m) “First trust instrument” means the trust instrument for a
35first trust.

36(n) “General power of appointment” means a power of
37appointment exercisable in favor of a powerholder, the
38powerholder’s estate, a creditor of the powerholder, or a creditor
39of the powerholder’s estate.

P4    1(o) “Jurisdiction,” with respect to a geographic area, includes
2a state or country.

3(p) “Person” means an individual, estate, business or nonprofit
4entity, public corporation, government or governmental
5subdivision, agency, or instrumentality, or other legal entity.

6(q) “Power of appointment” means a power that enables a
7powerholder acting in a nonfiduciary capacity to designate a
8recipient of an ownership interest in, or another power of
9appointment over, the appointive property. The term does not
10include a power of attorney.

11(r) “Powerholder” means a person in which a donor creates a
12power of appointment.

13(s) “Presently exercisable power of appointment” means a power
14of appointment exercisable by the powerholder at the relevant
15time.

16(1) The term includes a power of appointment exercisable only
17after the occurrence of a specified event, the satisfaction of an
18ascertainable standard, or the passage of a specified time only after
19one of the following, respectively:

20(A) The occurrence of the specified event.

21(B) The satisfaction of the ascertainable standard.

22(C) The passage of the specified time.

23(2) The term does not include a power exercisable only at the
24powerholder’s death.

25(t) “Qualified beneficiary” means a beneficiary that, on the date
26the beneficiary’s qualification is determined, satisfies one of the
27following conditions:

28(1) Is a distributee or permissible distributee of trust income or
29principal.

30(2) Would be a distributee or permissible distributee of trust
31income or principal if the interests of the distributees described in
32paragraph (1) terminated on that date without causing the trust to
33terminate.

34(3) Would be a distributee or permissible distributee of trust
35income or principal if the trust terminated on that date.

36(u) “Reasonably definite standard” means a clearly measurable
37standard under which a holder of a power of distribution is legally
38accountable within the meaning of Section 674(b)(5)(A) of Title
3926 of the United States Code and any applicable regulations.

P5    1(v) “Record” means information that is inscribed on a tangible
2medium or that is stored in an electronic or other medium and is
3retrievable in perceivable form.

4(w) “Second trust” means either of the following:

5(1) A first trust after modification under this part.

6(2) A trust to which a distribution of property from a first trust
7is or may be made under this part.

8(x) “Second trust instrument” means the trust instrument for a
9second trust.

10(y) “Settlor,” except as otherwise provided in Section 19524,
11means a person, including a testator, that creates or contributes
12property to a trust. If more than one person creates or contributes
13property to a trust, each person is a settlor of the portion of the
14trust property attributable to the person’s contribution except to
15the extent another person has power to revoke or withdraw that
16portion.

17(z) “Sign” means, with present intent to authenticate or adopt
18a record, to do either of the following:

19(1) Execute or adopt a tangible symbol.

20(2) Attach to or logically associate with the record an electronic
21symbol, sound, or process.

22(aa) “State” means a state of the United States, the District of
23Columbia, Puerto Rico, the United States Virgin Islands, or any
24territory or insular possession subject to the jurisdiction of the
25United States.

26(ab) “Terms of the trust” means the manifestation of the settlor’s
27intent regarding a trust’s provisions as expressed in the trust
28instrument, as may be established by other evidence that would
29be admissible in a judicial proceeding, or as may be established
30by court order or nonjudicial settlement agreement.

31(ac) “Trust instrument” means a record executed by the settlor
32to create a trust or by any person to create a second trust that
33contains some or all of the terms of the trust, including any
34amendments.

35

19502.  

(a) Except as otherwise provided in subdivisions (b)
36and (c), this part applies to an express trust that is irrevocable or
37revocable by the settlor only with the consent of the trustee or a
38person holding an adverse interest.

39(b) This part does not apply to a trust held solely for charitable
40purposes.

P6    1(c) Subject to Section 19514, a trust instrument may restrict or
2prohibit exercise of the decanting power.

3(d) This part does not limit the power of a trustee, powerholder,
4or other person to distribute or appoint property in further trust or
5to modify a trust under the trust instrument, law of this state other
6than this part, common law, a court order, or a nonjudicial
7settlement agreement.

8(e) This part does not affect the ability of a settlor to provide in
9a trust instrument for the distribution of the trust property or
10appointment in further trust of the trust property or for modification
11of the trust instrument.

12

19503.  

(a) In exercising the decanting power, an authorized
13fiduciary shall act in accordance with its fiduciary duties, including
14the duty to act in accordance with the purposes of the first trust.

15(b) This part does not create or imply a duty to exercise the
16decanting power or to inform beneficiaries about the applicability
17of this part.

18(c) Except as otherwise provided in a first trust instrument, for
19purposes of this part, the terms of the first trust are deemed to
20include the decanting power.

21

19504.  

This part applies to a trust created before, on, or after
22January 1, 2017, that satisfies either of the following conditions:

23(a) Has its principal place of administration in this state,
24including a trust whose principal place of administration has been
25changed to this state.

26(b) Provides by its trust instrument that it is governed by the
27law of this state or is governed by the law of this state for the
28purpose of any of the following:

29(1) Administration, including administration of a trust whose
30governing law for purposes of administration has been changed
31to the law of this state.

32(2) Construction of terms of the trust.

33(3) Determining the meaning or effect of terms of the trust.

34

19505.  

A trustee or other person that reasonably relies on the
35validity of a distribution of part or all of the property of a trust to
36another trust, or a modification of a trust, under this part, law of
37this state other than this part, or the law of another jurisdiction is
38not liable to any person for any action or failure to act as a result
39of the reliance.

P7    1

19506.  

(a) In this section, a notice period begins on the day
2notice is given under subdivision (c) and ends 59 days after the
3day notice is given.

4(b) Except as otherwise provided in this part, an authorized
5fiduciary may exercise the decanting power without the consent
6of any person and without court approval.

7(c) Except as otherwise provided in subdivision (f), an
8authorized fiduciary shall give notice in a record of the intended
9exercise of the decanting power not later than 60 days before the
10exercise to all of the following:

11(1) Each settlor of the first trust, if living or then in existence.

12(2) Each qualified beneficiary of the first trust.

13(3) Each holder of a presently exercisable power of appointment
14over any part or all of the first trust.

15(4) Each person that currently has the right to remove or replace
16the authorized fiduciary.

17(5) Each other fiduciary of the first trust.

18(6) Each fiduciary of the second trust.

19(7) The Attorney General, if subdivision (b) of Section 19513
20applies.

21(d) An authorized fiduciary is not required to give notice under
22subdivision (c) to a qualified beneficiary who is a minor and has
23no representative or to a person that is not known to the fiduciary
24or is known to the fiduciary but cannot be located by the fiduciary
25after reasonable diligence.

26(e) A notice under subdivision (c) shall include all of the
27following:

28(1) A description of the manner in which the authorized fiduciary
29intends to exercise the decanting power.

30(2) The proposed effective date for exercise of the power.

31(3) A copy of the first trust instrument.

32(4) A copy of all second trust instruments.

33(f) The decanting power may be exercised before expiration of
34the notice period under subdivision (a) if all persons entitled to
35receive notice waive the period in a signed record.

36(g) The receipt of notice, waiver of the notice period, or
37expiration of the notice period does not affect the right of a person
38to file an application under Section 19508 that asserts either of the
39following:

P8    1(1) An attempted exercise of the decanting power is ineffective
2because it did not comply with this part or was an abuse of
3discretion or breach of fiduciary duty.

4(2) Section 19521 applies to the exercise of the decanting power.

5(h) An exercise of the decanting power is not ineffective because
6of the failure to give notice to one or more persons under
7subdivision (c) if the authorized fiduciary acted with reasonable
8care to comply with subdivision (c).

9

19507.  

(a) Notice to a person with authority to represent and
10bind another person under this code or a first trust instrument has
11the same effect as notice given directly to the person represented.

12(b) Consent of or waiver by a person with authority to represent
13and bind another person under this code or a first trust instrument
14is binding on the person represented unless the person represented
15objects to the representation before the consent or waiver otherwise
16would become effective.

17(c) A person with authority to represent and bind another person
18under this code or a first trust instrument may file an application
19under Section 19508 on behalf of the person represented.

20(d) A settlor may not represent or bind a beneficiary under this
21part.

22

19508.  

(a) On application of an authorized fiduciary, a person
23entitled to notice under subdivision (c) of Section 19506, a
24beneficiary, or, with respect to a charitable interest, the Attorney
25General or other person that has standing to enforce the charitable
26interest, the court may do any of the following:

27(1) Provide instructions to the authorized fiduciary regarding
28whether a proposed exercise of the decanting power is permitted
29under this part and is consistent with the fiduciary duties of the
30authorized fiduciary.

31(2) Appoint a special fiduciary and authorize the special
32fiduciary to determine whether the decanting power should be
33exercised under this part and to exercise the decanting power.

34(3) Approve an exercise of the decanting power.

35(4) Determine that a proposed or attempted exercise of the
36decanting power is ineffective because of either of the following:

37(A) After applying Section 19521, the proposed or attempted
38exercise does not or did not comply with this part.

39(B) The proposed or attempted exercise would be or was an
40abuse of the fiduciary’s discretion or a breach of fiduciary duty.

P9    1(5) Determine the extent to which Section 19521 applies to a
2prior exercise of the decanting power.

3(6) Provide instructions to the trustee regarding the application
4of Section 19521 to a prior exercise of the decanting power.

5(7) Order other relief to carry out the purposes of this part.

6(b) On application of an authorized fiduciary, the court may
7approve either or both of the following:

8(1) An increase in the fiduciary’s compensation under Section
919515.

10(2) A modification under Section 19517 of a provision granting
11a person the right to remove or replace the fiduciary.

12

19509.  

An exercise of the decanting power shall be made in a
13record signed by an authorized fiduciary. The signed record shall,
14directly or by reference to the notice required by Section 19506,
15identify the first trust and the second trust or trusts and state the
16property of the first trust being distributed to each second trust and
17the property, if any, that remains in the first trust.

18

19510.  

(a) For purposes of this section:

19(1) “Noncontingent right” means a right that is not subject to
20the exercise of discretion or the occurrence of a specified event
21that is not certain to occur. The term does not include a right held
22by a beneficiary if any person has discretion to distribute property
23subject to the right to any person other than the beneficiary or the
24beneficiary’s estate.

25(2) “Presumptive remainder beneficiary” means a qualified
26beneficiary other than a current beneficiary.

27(3) “Successor beneficiary” means a beneficiary that is not a
28qualified beneficiary on the date the beneficiary’s qualification is
29determined. The term does not include a person that is a beneficiary
30only because the person holds a nongeneral power of appointment.

31(4) “Vested interest” means any of the following:

32(A) A right to a mandatory distribution that is a noncontingent
33right as of the date of the exercise of the decanting power.

34(B) A current and noncontingent right, annually or more
35frequently, to a mandatory distribution of income, a specified dollar
36amount, or a percentage of value of some or all of the trust
37property.

38(C) A current and noncontingent right, annually or more
39frequently, to withdraw income, a specified dollar amount, or a
40percentage of value of some or all of the trust property.

P10   1(D) A presently exercisable general power of appointment.

2(E) A right to receive an ascertainable part of the trust property
3on the trust’s termination that is not subject to the exercise of
4discretion or to the occurrence of a specified event that is not
5certain to occur.

6(b) Subject to subdivision (c) and Section 19513, an authorized
7fiduciary that has expanded distributive discretion over the
8principal of a first trust for the benefit of one or more current
9beneficiaries may exercise the decanting power over the principal
10of the first trust.

11(c) Subject to Section 19512, in an exercise of the decanting
12power under this section, a second trust may not do any of the
13following:

14(1) Include as a current beneficiary a person that is not a current
15beneficiary of the first trust, except as otherwise provided in
16subdivision (d).

17(2) Include as a presumptive remainder beneficiary or successor
18beneficiary a person that is not a current beneficiary, presumptive
19remainder beneficiary, or successor beneficiary of the first trust,
20except as otherwise provided in subdivision (d).

21(3) Reduce or eliminate a vested interest.

22(d) Subject to paragraph (3) of subdivision (c) and Section
2319513, in an exercise of the decanting power under this section, a
24second trust may be a trust created or administered under the law
25of any jurisdiction and may do each of the following:

26(1) Retain a power of appointment granted in the first trust.

27(2) Omit a power of appointment granted in the first trust, other
28than a presently exercisable general power of appointment.

29(3) Create or modify a power of appointment if the powerholder
30is a current beneficiary of the first trust and the authorized fiduciary
31has expanded distributive discretion to distribute principal to the
32beneficiary.

33(4) Create or modify a power of appointment if the powerholder
34is a presumptive remainder beneficiary or successor beneficiary
35of the first trust, but the exercise of the power may take effect only
36after the powerholder becomes, or would have become if then
37living, a current beneficiary.

38(e) A power of appointment described in paragraphs (1) to (4),
39inclusive, of subdivision (d) may be general or nongeneral. The
40class of permissible appointees in favor of which the power may
P11   1be exercised may be broader than, or different from, the
2beneficiaries of the first trust.

3(f) If an authorized fiduciary has expanded distributive discretion
4over part but not all of the principal of a first trust, the fiduciary
5may exercise the decanting power under this section over that part
6of the principal over which the authorized fiduciary has expanded
7distributive discretion.

8

19511.  

(a) For purposes of this section, “limited distributive
9discretion” means a discretionary power of distribution that is
10limited to an ascertainable standard or a reasonably definite
11standard.

12(b) An authorized fiduciary that has limited distributive
13discretion over the principal of the first trust for benefit of one or
14more current beneficiaries may exercise the decanting power over
15the principal of the first trust.

16(c) Under this section and subject to Section 19513, a second
17trust may be created or administered under the law of any
18jurisdiction. Under this section, the second trusts, in the aggregate,
19shall grant each beneficiary of the first trust beneficial interests
20which are substantially similar to the beneficial interests of the
21beneficiary in the first trust.

22(d) A power to make a distribution under a second trust for the
23benefit of a beneficiary who is an individual is substantially similar
24to a power under the first trust to make a distribution directly to
25the beneficiary. A distribution is for the benefit of a beneficiary if
26it satisfies any of the following conditions:

27(1) The distribution is applied for the benefit of the beneficiary.

28(2) The beneficiary is under a legal disability or the trustee
29reasonably believes the beneficiary is incapacitated, and the
30distribution is made as permitted under this code.

31(3) The distribution is made as permitted under the terms of the
32first trust instrument and the second trust instrument for the benefit
33of the beneficiary.

34(e) If an authorized fiduciary has limited distributive discretion
35over part but not all of the principal of a first trust, the fiduciary
36may exercise the decanting power under this section over that part
37of the principal over which the authorized fiduciary has limited
38distributive discretion.

39

19512.  

(a) For purposes of this section:

P12   1(1) “Beneficiary with a disability” means a beneficiary of a first
2trust who the special needs fiduciary believes may qualify for
3governmental benefits based on disability, whether or not the
4beneficiary currently receives those benefits or is an individual
5who has been adjudicated legally incompetent.

6(2) “Governmental benefits” means financial aid or services
7from a state, federal, or other public agency.

8(3) “Special needs fiduciary” means, with respect to a trust that
9has a beneficiary with a disability, any of the following:

10(A) A trustee or other fiduciary, other than a settlor, that has
11discretion to distribute part or all of the principal of a first trust to
12one or more current beneficiaries.

13(B) If no trustee or fiduciary has discretion under subparagraph
14(A), a trustee or other fiduciary, other than a settlor, that has
15discretion to distribute part or all of the income of the first trust to
16one or more current beneficiaries.

17(C) If no trustee or fiduciary has discretion under subparagraphs
18(A) and (B), a trustee or other fiduciary, other than a settlor, that
19is required to distribute part or all of the income or principal of
20the first trust to one or more current beneficiaries.

21(4) “Special needs trust” means a trust the trustee believes would
22not be considered a resource for purposes of determining whether
23a beneficiary with a disability is eligible for governmental benefits.

24(b) A special needs fiduciary may exercise the decanting power
25under Section 19510 over the principal of a first trust as if the
26fiduciary had authority to distribute principal to a beneficiary with
27a disability subject to expanded distributive discretion if both of
28the following conditions are satisfied:

29(1) A second trust is a special needs trust that benefits the
30beneficiary with a disability.

31(2) The special needs fiduciary determines that exercise of the
32decanting power will further the purposes of the first trust.

33(c) In an exercise of the decanting power under this section, all
34of the following rules apply:

35(1) Notwithstanding paragraph (2) of subdivision (c) of Section
3619510, the interest in the second trust of a beneficiary with a
37disability may fulfill either of the following:

38(A) Be a pooled trust as defined by Medicaid law for the benefit
39of the beneficiary with a disability under Section 1396p(d)(4)(C)
40of Title 42 of the United States Code.

P13   1(B) Contain payback provisions complying with reimbursement
2requirements of Medicaid law under Section 1396p(d)(4)(A) of
3Title 42 of the United States Code.

4(2) Paragraph (3) of subdivision (c) of Section 19510 does not
5apply to the interests of the beneficiary with a disability.

6(3) Except as affected by any change to the interests of the
7beneficiary with a disability, the second trust, or if there are two
8or more second trusts, the second trusts in the aggregate, shall
9grant each other beneficiary of the first trust beneficial interests
10in the second trusts which are substantially similar to the
11beneficiary’s beneficial interests in the first trust.

12

19513.  

(a) For purposes of this section:

13(1) “Determinable charitable interest” means a charitable interest
14that is a right to a mandatory distribution currently, periodically,
15on the occurrence of a specified event, or after the passage of a
16specified time and that is unconditional or will be held solely for
17charitable purposes.

18(2) “Unconditional” means not subject to the occurrence of a
19specified event that is not certain to occur, other than a requirement
20in a trust instrument that a charitable organization be in existence
21or qualify under a particular provision of the United States Internal
22Revenue Code of 1986 on the date of the distribution, if the
23charitable organization meets the requirement on the date of
24determination.

25(b) If a first trust contains a determinable charitable interest, the
26Attorney General has the rights of a qualified beneficiary and may
27represent and bind the charitable interest.

28(c) If a first trust contains a charitable interest, the second trust
29or trusts may not do any of the following:

30(1) Diminish the charitable interest.

31(2) Diminish the interest of an identified charitable organization
32that holds the charitable interest.

33(3) Alter any charitable purpose stated in the first trust
34instrument.

35(4) Alter any condition or restriction related to the charitable
36interest.

37(d) If there are two or more second trusts, the second trusts shall
38be treated as one trust for purposes of determining whether the
39exercise of the decanting power diminishes the charitable interest
P14   1or diminishes the interest of an identified charitable organization
2for purposes of subdivision (c).

3(e) If a first trust contains a determinable charitable interest, the
4second trust or trusts that include a charitable interest pursuant to
5subdivision (c) shall be administered under the law of this state
6unless any of the following occur:

7(1) The Attorney General, after receiving notice under Section
819506, fails to object in a signed record delivered to the authorized
9fiduciary within the notice period.

10(2) The Attorney General consents in a signed record to the
11second trust or trusts being administered under the law of another
12jurisdiction.

13(3) The court approves the exercise of the decanting power.

14(f) This part does not limit the powers and duties of the Attorney
15General under law of this state other than this part.

16

19514.  

(a) An authorized fiduciary may not exercise the
17decanting power to the extent the first trust instrument expressly
18prohibits exercise of either of the following:

19(1) The decanting power.

20(2) A power granted by state law to the fiduciary to distribute
21part or all of the principal of the trust to another trust or to modify
22the trust.

23(b) Exercise of the decanting power is subject to any restriction
24in the first trust instrument that expressly applies to exercise either
25of the following:

26(1) The decanting power.

27(2) A power granted by state law to a fiduciary to distribute part
28or all of the principal of the trust to another trust or to modify the
29trust.

30(c) A general prohibition of the amendment or revocation of a
31first trust, a spendthrift clause, or a clause restraining the voluntary
32or involuntary transfer of a beneficiary’s interest does not preclude
33exercise of the decanting power.

34(d) Subject to subdivisions (a) and (b), an authorized fiduciary
35may exercise the decanting power under this part even if the first
36trust instrument permits the authorized fiduciary or another person
37to modify the first trust instrument or to distribute part or all of
38the principal of the first trust to another trust.

39(e) If a first trust instrument contains an express prohibition
40 described in subdivision (a) or an express restriction described in
P15   1subdivision (b), the provision shall be included in the second trust
2instrument.

3

19515.  

(a) If a first trust instrument specifies an authorized
4fiduciary’s compensation, the fiduciary may not exercise the
5decanting power to increase the fiduciary’s compensation above
6the specified compensation unless either of the following occurs:

7(1) All qualified beneficiaries of the second trust consent to the
8increase in a signed record.

9(2) The increase is approved by the court.

10(b) If a first trust instrument does not specify an authorized
11fiduciary’s compensation, the fiduciary may not exercise the
12decanting power to increase the fiduciary’s compensation above
13the compensation permitted by this code unless either of the
14following occurs:

15(1) All qualified beneficiaries of the second trust consent to the
16increase in a signed record.

17(2) The increase is approved by the court.

18(c) A change in an authorized fiduciary’s compensation which
19is incidental to other changes made by the exercise of the decanting
20power is not an increase in the fiduciary’s compensation for
21purposes of subdivisions (a) and (b).

22

19516.  

(a) Except as otherwise provided in this section, a
23second trust instrument may not relieve an authorized fiduciary
24from liability for breach of trust to a greater extent than the first
25trust instrument.

26(b) A second trust instrument may provide for indemnification
27of an authorized fiduciary of the first trust or another person acting
28in a fiduciary capacity under the first trust for any liability or claim
29that would have been payable from the first trust if the decanting
30power had not been exercised.

31(c) A second trust instrument may not reduce fiduciary liability
32in the aggregate.

33(d) Subject to subdivision (c), a second trust instrument may
34divide and reallocate fiduciary powers among fiduciaries, including
35one or more trustees, distribution advisors, investment advisors,
36trust protectors, or other persons, and may relieve a fiduciary from
37liability for an act or failure to act of another fiduciary as permitted
38by law of this state other than this part.

39

19517.  

An authorized fiduciary may not exercise the decanting
40power to modify a provision in a first trust instrument granting
P16   1another person power to remove or replace the fiduciary unless
2any of the following occurs:

3(a) The person holding the power consents to the modification
4in a signed record and the modification applies only to the person.

5(b) The person holding the power and the qualified beneficiaries
6of the second trust consent to the modification in a signed record
7and the modification grants a substantially similar power to another
8person.

9(c) The court approves the modification and the modification
10grants a substantially similar power to another person.

11

19518.  

(a) For purposes of this section:

12(1) “Grantor trust” means a trust as to which a settlor of a first
13trust is considered the owner under Sections 671 to 677, inclusive,
14or Section 679 of Title 26 of the United States Code.

15(2) “Internal Revenue Code” means the United States Internal
16Revenue Code of 1986.

17(3) “Nongrantor trust” means a trust that is not a grantor trust.

18(4) “Qualified benefits property” means property subject to the
19minimum distribution requirements of Section 401(a)(9) of Title
2026 of the United States Code, and any applicable regulations, or
21to any similar requirements that refer to Section 401(a)(9) of Title
2226 of the United States Code or the regulations.

23(b) An exercise of the decanting power is subject to all of the
24following limitations:

25(1) If a first trust contains property that qualified, or would have
26qualified but for provisions of this part other than this section, for
27a marital deduction for purposes of the gift or estate tax under the
28Internal Revenue Code or a state gift, estate, or inheritance tax,
29the second trust instrument shall not include or omit any term that,
30if included in or omitted from the trust instrument for the trust to
31which the property was transferred, would have prevented the
32transfer from qualifying for the deduction, or would have reduced
33the amount of the deduction, under the same provisions of the
34Internal Revenue Code or state law under which the transfer
35 qualified.

36(2) If the first trust contains property that qualified, or would
37have qualified but for provisions of this part other than this section,
38for a charitable deduction for purposes of the income, gift, or estate
39tax under the Internal Revenue Code or a state income, gift, estate,
40or inheritance tax, the second trust instrument shall not include or
P17   1omit any term that, if included in or omitted from the trust
2instrument for the trust to which the property was transferred,
3would have prevented the transfer from qualifying for the
4deduction, or would have reduced the amount of the deduction,
5under the same provisions of the Internal Revenue Code or state
6law under which the transfer qualified.

7(3) If the first trust contains property that qualified, or would
8have qualified but for provisions of this part other than this section,
9for the exclusion from the gift tax described in Section 2503(b) of
10Title 26 of the United States Code, the second trust instrument
11shall not include or omit a term that, if included in or omitted from
12the trust instrument for the trust to which the property was
13transferred, would have prevented the transfer from qualifying
14under Section 2503(b) of Title 26 of the United States Code. If the
15first trust contains property that qualified, or would have qualified
16but for provisions of this part other than this section, for the
17exclusion from the gift tax described in Section 2503(b) of Title
1826 of the United States Code by application of Section 2503(c) of
19Title 26 of the United States Code, the second trust instrument
20shall not include or omit a term that, if included or omitted from
21the trust instrument for the trust to which the property was
22transferred, would have prevented the transfer from qualifying
23under Section 2503(c) of Title 26 of the United States Code.

24(4) If the property of the first trust includes shares of stock in
25an S-corporation, as defined in Section 1361 of Title 26 of the
26United States Code and the first trust is, or but for provisions of
27this part other than this section would be, a permitted shareholder
28under any provision of Section 1361 of Title 26 of the United
29States Code, an authorized fiduciary may exercise the power with
30respect to part or all of the S-corporation stock only if any second
31trust receiving the stock is a permitted shareholder under Section
321361(c)(2) of Title 26 of the United States Code. If the property
33of the first trust includes shares of stock in an S-corporation and
34the first trust is, or but for provisions of this part other than this
35section would be, a qualified subchapter-S trust within the meaning
36of Section 1361(d) of Title 26 of the United States Code, the second
37trust instrument shall not include or omit a term that prevents the
38second trust from qualifying as a qualified subchapter-S trust.

39(5) If the first trust contains property that qualified, or would
40have qualified but for provisions of this part other than this section,
P18   1for a zero inclusion ratio for purposes of the generation-skipping
2transfer tax under Section 2642(c) of Title 26 of the United States
3Code, the second trust instrument shall not include or omit a term
4that, if included in or omitted from the first trust instrument, would
5have prevented the transfer to the first trust from qualifying for a
6zero inclusion ratio under Section 2642(c) of Title 26 of the United
7States Code.

8(6) If the first trust is directly or indirectly the beneficiary of
9qualified benefits property, the second trust instrument may not
10include or omit any term that, if included in or omitted from the
11first trust instrument, would have increased the minimum
12distributions required with respect to the qualified benefits property
13under Section 401(a)(9) of Title 26 of the United States Code and
14any applicable regulations, or any similar requirements that refer
15to Section 401(a)(9) of Title 26 of the United States Code or the
16regulations. If an attempted exercise of the decanting power
17violates the preceding sentence, the trustee is deemed to have held
18the qualified benefits property and any reinvested distributions of
19the property as a separate share from the date of the exercise of
20the power and Section 19521 applies to the separate share.

21(7) If the first trust qualifies as a grantor trust because of the
22application of Section 672(f)(2)(A) of Title 26 of the United States
23Code, the second trust may not include or omit a term that, if
24included in or omitted from the first trust instrument, would have
25prevented the first trust from qualifying under Section 672(f)(2)(A)
26of Title 26 of the United States Code.

27(8) In this paragraph, “tax benefit” means a federal or state tax
28deduction, exemption, exclusion, or other benefit not otherwise
29listed in this section, except for a benefit arising from being a
30grantor trust. Subject to paragraph (9), a second trust instrument
31may not include or omit a term that, if included in or omitted from
32the first trust instrument, would have prevented qualification for
33a tax benefit if both of the following apply:

34(A) The first trust instrument expressly indicates an intent to
35qualify for the benefit or the first trust instrument clearly is
36designed to enable the first trust to qualify for the benefit.

37(B) The transfer of property held by the first trust or the first
38trust qualified, or but for provisions of this part other than this
39section, would have qualified for the tax benefit.

P19   1(9) (A) Subject to paragraph (4), and except as otherwise
2provided in paragraph (7), the second trust may be a nongrantor
3trust, even if the first trust is a grantor trust.

4(B) Subject to paragraph (4), and except as otherwise provided
5in paragraph (10), the second trust may be a grantor trust, even if
6the first trust is a nongrantor trust.

7(10) An authorized fiduciary may not exercise the decanting
8power if a settlor objects in a signed record delivered to the
9fiduciary within the notice period and either of the following
10conditions are satisfied:

11(A) The first trust and a second trust are both grantor trusts, in
12whole or in part, the first trust grants the settlor or another person
13the power to cause the second trust to cease to be a grantor trust,
14and the second trust does not grant an equivalent power to the
15settlor or other person.

16(B) The first trust is a nongrantor trust and a second trust is a
17grantor trust, in whole or in part, with respect to the settlor, unless
18either of the following apply:

19(i) The settlor has the power at all times to cause the second
20trust to cease to be a grantor trust.

21(ii) The first trust instrument contains a provision granting the
22settlor or another person a power that would cause the first trust
23to cease to be a grantor trust and the second trust instrument
24contains the same provision.

25

19519.  

(a) Subject to subdivision (b), a second trust may have
26a duration that is the same as, or different from, the duration of
27the first trust.

28(b) To the extent that property of a second trust is attributable
29to property of the first trust, the property of the second trust is
30subject to any rules governing maximum perpetuity, accumulation,
31or suspension of the power of alienation that apply to property of
32the first trust.

33

19520.  

An authorized fiduciary may exercise the decanting
34power whether or not under the first trust’s discretionary
35distribution standard the fiduciary would have made or could have
36been compelled to make a discretionary distribution of principal
37at the time of the exercise.

38

19521.  

(a) If exercise of the decanting power would be
39effective under this part, except that the second trust instrument
40in part does not comply with this part, the exercise of the power
P20   1is effective and the following rules apply with respect to the
2principal of the second trust attributable to the exercise of the
3power:

4(1) A provision in the second trust instrument that is not
5permitted under this part is void to the extent necessary to comply
6with this part.

7(2) A provision required by this part to be in the second trust
8instrument, which is not contained in the instrument, is deemed to
9be included in the instrument to the extent necessary to comply
10with this part.

11(b) If a trustee or other fiduciary of a second trust determines
12that subdivision (a) applies to a prior exercise of the decanting
13power, the fiduciary shall take corrective action consistent with
14the fiduciary’s duties.

15

19522.  

(a) For purposes of this section:

16(1) “Animal trust” means a trust or an interest in a trust created
17to provide for the care of one or more animals.

18(2) “Protector” means a person appointed in an animal trust to
19enforce the trust on behalf of the animal or, if no such person is
20appointed in the trust, a person appointed by the court for that
21purpose.

22(b) The decanting power may be exercised over an animal trust
23that has a protector to the extent the trust could be decanted under
24this part if each animal that benefits from the trust were an
25individual, if the protector consents in a signed record to the
26exercise of the power.

27(c) A protector for an animal has the rights under this part of a
28qualified beneficiary.

29(d) Notwithstanding any other provision of this part, if a first
30trust is an animal trust, in an exercise of the decanting power, the
31second trust shall provide that trust property may be applied only
32to its intended purpose for the period the first trust benefited the
33animal.

34

19523.  

A reference in this code to a trust instrument or terms
35of the trust includes a second trust instrument and the terms of the
36second trust.

37

19524.  

(a) For purposes of the law of this state other than this
38part and subject to subdivision (b), a settlor of a first trust is deemed
39to be the settlor of the second trust with respect to the portion of
P21   1the principal of the first trust subject to the exercise of the decanting
2power.

3(b) In determining settlor intent with respect to a second trust,
4the intent of a settlor of the first trust, a settlor of the second trust,
5and the authorized fiduciary may be considered.

6

19525.  

(a) Except as otherwise provided in subdivision (c), if
7exercise of the decanting power was intended to distribute all the
8principal of the first trust to one or more second trusts,
9later-discovered property belonging to the first trust and property
10paid to or acquired by the first trust after the exercise of the power
11is part of the trust estate of the second trust or trusts.

12(b) Except as otherwise provided in subdivision (c), if exercise
13of the decanting power was intended to distribute less than all the
14principal of the first trust to one or more second trusts,
15later-discovered property belonging to the first trust or property
16paid to or acquired by the first trust after exercise of the power
17remains part of the trust estate of the first trust.

18(c) An authorized fiduciary may provide in an exercise of the
19decanting power or by the terms of a second trust for disposition
20of later-discovered property belonging to the first trust or property
21paid to or acquired by the first trust after exercise of the power.

22

19526.  

A debt, liability, or other obligation enforceable against
23property of a first trust is enforceable to the same extent against
24the property when held by the second trust after exercise of the
25decanting power.

26

19527.  

In applying and construing this uniform act,
27consideration shall be given to the need to promote uniformity of
28the law with respect to its subject matter among states that enact
29it.

30

19528.  

This part modifies, limits, or supersedes the federal
31Electronic Signatures in Global and National Commerce Act (15
32U.S.C. Sec. 7001 et seq.), but does not modify, limit, or supersede
33Section 101(c) of that act (15 U.S.C. Sec. 7001(c)) or authorize
34electronic delivery of any of the notices described in Section 103(b)
35of that act (15 U.S.C. Sec. 7003(b)).

36

19529.  

The provisions of this part are severable. If any
37provision of this part or its application is held invalid, that
P22   1invalidity shall not affect other provisions or applications that can
2be given effect without the invalid provision or application.



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