Indiana House Bill HB1205 Introduced / Bill

                     
Introduced Version
HOUSE BILL No. 1205
_____
DIGEST OF INTRODUCED BILL
Citations Affected:  IC 30-4; IC 34-30-2-132.7.
Synopsis:  Uniform trust decanting act and trustee duties. Allows a
trustee of an irrevocable trust to appoint a successor trustee or multiple
trustees. Provides that a trustee's power to appoint a successor trustee
includes the power to allocate trustee powers to one or more trustees.
Enacts the uniform trust decanting act. Creates a definition of the
decanting power to include a power by a trustee to make limited
modifications to an irrevocable trust, including an asset transfer to a
new trust. Requires that a modification be consistent with a settlor's or
charitable organization's intent. Permits the trustee of an existing trust
to make modifications to or distributions from an existing trust for the
benefit of a disabled beneficiary. Prohibits a trustee from being
required to decant. Requires advanced notice to all qualified
beneficiaries. (The introduced version of this bill was prepared by the
Probate Code Commission.)
Effective:  July 1, 2022.
Young J
January 6, 2022, read first time and referred to Committee on Judiciary.
2022	IN 1205—LS 6169/DI 107 Introduced
Second Regular Session of the 122nd General Assembly (2022)
PRINTING CODE. Amendments: Whenever an existing statute (or a section of the Indiana
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a new provision to the Indiana Code or the Indiana Constitution.
  Conflict reconciliation: Text in a statute in this style type or this style type reconciles conflicts
between statutes enacted by the 2021 Regular Session of the General Assembly.
HOUSE BILL No. 1205
A BILL FOR AN ACT to amend the Indiana Code concerning trusts
and fiduciaries.
Be it enacted by the General Assembly of the State of Indiana:
1 SECTION 1. IC 30-4-3-29.3 IS ADDED TO THE INDIANA CODE
2 AS A NEW SECTION TO READ AS FOLLOWS [EFFECTIVE JULY
3 1, 2022]: Sec. 29.3. (a) The power to appoint a successor trustee
4 under a governing instrument or under section 33 of this chapter
5 includes:
6 (1) the power to appoint multiple successor trustees; and
7 (2) the power to allocate trustee powers to one (1) or more
8 trustees.
9 (b) A trustee to whom powers:
10 (1) have been exclusively allocated under subsection (a) must
11 be a fiduciary only with respect to the powers allocated; and
12 (2) have not been allocated under subsection (a) is not liable
13 for the actions of a trustee to whom the powers, duties, and
14 responsibilities are allocated.
15 (c) The rules governing the rights, powers, duties, and liabilities
16 of a governing instrument under this chapter apply to a trustee
17 appointed under this section unless expressly limited by the terms
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1 of a governing instrument.
2 SECTION 2. IC 30-4-3-36 IS REPEALED [EFFECTIVE JULY 1,
3 2022]. Sec. 36. (a) Unless a trust expressly provides otherwise, a
4 trustee who has discretion under the terms of a trust (referred to in this
5 section as the "first trust") to invade the principal of the trust to make
6 distributions to or for the benefit of one (1) or more persons may
7 instead exercise the power by appointing all or part of the principal of
8 the first trust in favor of a trustee of another trust (referred to in this
9 section as the "second trust") for the benefit of one (1) or more persons
10 under the same trust instrument or under a different trust instrument as
11 long as:
12 (1) the beneficiaries of the second trust are the same as the
13 beneficiaries of the first trust;
14 (2) the second trust does not reduce any income, annuity, or
15 unitrust interest in the assets of the first trust; and
16 (3) if any contributions to the first trust qualified for a marital or
17 charitable deduction for purposes of the federal income, gift, or
18 estate taxes, the second trust does not contain any provision that,
19 if included in the first trust, would have prevented the first trust
20 from qualifying for a deduction or reduced the amount of a
21 deduction.
22 (b) The exercise of a power to invade principal under subsection (a)
23 must be by an instrument that is:
24 (1) in writing;
25 (2) signed and acknowledged by the trustee; and
26 (3) filed with the records of the first trust.
27 (c) The exercise of a power to invade principal under subsection (a)
28 is considered the exercise of a power of appointment, other than a
29 power to appoint to the trustee, the trustee's creditors, the trustee's
30 estate, or the creditors of the trustee's estate. The exercise of the power
31 does not extend the time at which the permissible period of the rule
32 against perpetuities begins and the law that determines the permissible
33 period of the rule against perpetuities of the first trust.
34 (d) The trustee shall notify in writing all qualified beneficiaries of
35 the first trust at least sixty (60) days before the effective date of the
36 trustee's exercise of the power to invade principal under subsection (a)
37 of the manner in which the trustee intends to exercise the power. A
38 copy of the proposed instrument exercising the power satisfies the
39 trustee's notice obligation under this subsection. If all qualified
40 beneficiaries waive the notice period by signed written instrument
41 delivered to the trustee, the trustee's power to invade principal may be
42 exercised immediately. The trustee's notice under this subsection does
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1 not limit the right of any beneficiary to object to the exercise of the
2 trustee's power to invade principal, except as otherwise provided by
3 this article.
4 (e) The exercise of the power to invade principal under subsection
5 (a) is not prohibited by a spendthrift clause or by a provision in the
6 trust instrument that prohibits amending or revoking the trust.
7 (f) This section is not intended to create or imply a duty to exercise
8 a power to invade principal. No inference of impropriety may be made
9 as a result of a trustee not exercising the power to invade principal
10 conferred under subsection (a).
11 (g) This section may not be construed to abridge the right of any
12 trustee who has a power of invasion to appoint property in further trust
13 that arises under the terms of the first trust, under any other provision
14 of this article or any other statute, or under common law.
15 SECTION 3. IC 30-4-10 IS ADDED TO THE INDIANA CODE AS
16 A NEW CHAPTER TO READ AS FOLLOWS [EFFECTIVE JULY
17 1, 2022]:
18 Chapter 10. Uniform Trust Decanting Act
19 Sec. 1. (a) This chapter applies to a trust created before, on, or
20 after July 1, 2022, that:
21 (1) has its principal place of administration in this state,
22 including a trust whose principal place of administration has
23 been changed to this state; or
24 (2) provides by its trust instrument that it is governed by the
25 law of this state or is governed by the law of this state for the
26 purpose of:
27 (A) administration, including administration of a trust
28 whose governing law for purposes of administration has
29 been changed to the law of this state;
30 (B) construction of terms of the trust; or
31 (C) determining the meaning or effect of terms of the trust.
32 (b) Except as provided in subsections (c) and (d), this chapter
33 applies to an express trust that is irrevocable or revocable by the
34 settlor only with the consent of the trustee or a person holding an
35 adverse interest.
36 (c) This chapter does not:
37 (1) apply to a trust held solely for charitable purposes;
38 (2) limit the power of a trustee, powerholder, or other person
39 to distribute or appoint property in further trust;
40 (3) limit the power to modify a trust under the trust
41 instrument, law of this state other than this chapter, common
42 law, a court order, or a nonjudicial settlement agreement; or
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1 (4) affect the ability of a settlor to provide in a trust
2 instrument for the distribution of the trust property or
3 appointment in further trust of the trust property or for
4 modification of the trust instrument. Such provisions in the
5 trust instrument shall control over any applicable provision
6 of this chapter.
7 (d) Subject to section 45 of this chapter, a trust instrument may
8 restrict or prohibit exercise of the decanting power.
9 Sec. 2. As used in this chapter, "appointive property" means the
10 property or property interest subject to a power of appointment.
11 Sec. 3. As used in this chapter, "ascertainable standard" means
12 a standard relating to an individual's health, education, support, or
13 maintenance as defined by 26 U.S.C. 2041(b)(1)(A) or 26 U.S.C.
14 2514(c)(1) and applicable regulations.
15 Sec. 4. As used in this chapter, "authorized fiduciary" means:
16 (1) a trustee, trust director, or other fiduciary, other than a
17 settlor, that has discretion to distribute or direct a trustee to
18 distribute part or all of the principal of the first trust to one
19 (1) or more current beneficiaries;
20 (2) a special fiduciary appointed under section 39 of this
21 chapter; or
22 (3) a special-needs fiduciary under section 43 of this chapter.
23 Sec. 5. As used in this chapter, "beneficiary" means a person
24 that:
25 (1) has a present or future, vested or contingent, beneficial
26 interest in a trust;
27 (2) holds a power of appointment over trust property; or
28 (3) is an identified charitable organization that may receive
29 distributions under the terms of the trust.
30 Sec. 6. As used in this chapter, "beneficiary with disability"
31 means a beneficiary who is determined, in the exercise of an
32 authorized fiduciary's discretion, to have one (1) of the following
33 conditions:
34 (1) Dementia, memory loss, Parkinson's disease, or other
35 progressive condition that, currently or in the future, may
36 impair the ability of the beneficiary to provide self care or
37 manage the beneficiary's assets.
38 (2) A physical or mental condition or infirmity due to age,
39 cognitive impairment, addiction, or disease that impairs the
40 beneficiary's ability to provide self care or manage the
41 beneficiary's assets.
42 (3) The susceptibility of the beneficiary, at any age, to
2022	IN 1205—LS 6169/DI 107 5
1 financial exploitation, as defined in IC 23-19-4.1,
2 IC 30-5-5-6.5, or FINRA Rule 2165 approved by the United
3 States Securities and Exchange Commission.
4 (4) A condition requiring essential medical treatment or
5 prescription medication that the beneficiary cannot
6 reasonably provide for from the beneficiary's resources
7 outside the trust assets.
8 (5) A condition related directly or indirectly to the disability
9 of a beneficiary described in subdivisions (1) through (4) with
10 respect to which the settlor of the trust has expressed the
11 settlor's intent.
12 Sec. 7. As used in this chapter, "charitable interest" means an
13 interest in a trust that:
14 (1) is held by an identified charitable organization and makes
15 the organization a qualified beneficiary;
16 (2) benefits only a charitable organization and, if the interest
17 were held by an identified charitable organization, would
18 make the organization a qualified beneficiary; or
19 (3) is held solely for a charitable purpose and, if the interest
20 were held by an identified charitable organization, would
21 make the organization a qualified beneficiary.
22 Sec. 8. As used in this chapter, "charitable organization" means:
23 (1) a person, other than an individual, organized and operated
24 exclusively for a charitable purpose; or
25 (2) a government or governmental subdivision, agency, or
26 instrumentality to the extent it holds funds exclusively for a
27 charitable purpose.
28 Sec. 9. As used in this chapter, "charitable purpose" means the
29 relief of poverty, the advancement of education or religion, the
30 promotion of health, a municipal or other governmental purpose,
31 or a purpose that is beneficial to the community.
32 Sec. 10. As used in this chapter, "court" has the meaning set
33 forth in IC 30-4-1-2(6).
34 Sec. 11. As used in this chapter, "current beneficiary" means a
35 beneficiary who, on the date that the beneficiary's qualification is
36 determined, is a distributee or permissible distributee of trust
37 income or principal. The term includes the holder of a presently
38 exercisable general power of appointment but does not include a
39 person that is a beneficiary only because the person holds any
40 other power of appointment.
41 Sec. 12. As used in this chapter, "decanting power" means the
42 power of an authorized fiduciary under this chapter to:
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1 (1) distribute property of a first trust to one (1) or more
2 second trusts; or
3 (2) to modify the terms of the first trust.
4 Sec. 13. As used in this chapter, "designated representative" has
5 the meaning set forth in IC 30-4-1-2(8).
6 Sec. 14. As used in this chapter, "expanded distributive
7 discretion" means a discretionary power of distribution that is not
8 limited to an ascertainable standard or a reasonably definite
9 standard.
10 Sec. 15. As used in this chapter, "first trust" means a trust over
11 which an authorized fiduciary may exercise the decanting power.
12 Sec. 16. As used in this chapter, "first-trust instrument" means
13 the trust instrument for a first trust.
14 Sec. 17. As used in this chapter, "general power of
15 appointment" means a power of appointment exercisable in favor
16 of:
17 (1) a powerholder;
18 (2) a powerholder's estate;
19 (3) a creditor of the powerholder; or
20 (4) a creditor of the powerholder's estate.
21 Sec. 18. As used in this chapter, "jurisdiction" means a
22 geographic area, including a state or country.
23 Sec. 19. As used in this chapter, "person" means:
24 (1) an individual;
25 (2) a corporation;
26 (3) a business trust;
27 (4) an estate;
28 (5) a trust;
29 (6) a partnership;
30 (7) a limited liability company;
31 (8) an association;
32 (9) a joint venture;
33 (10) a government;
34 (11) a governmental subdivision;
35 (12) an agency or instrumentality;
36 (13) a public corporation; or
37 (14) any other legal or commercial entity.
38 Sec. 20. As used in this chapter, "power of appointment" means
39 a power that enables a powerholder acting in a nonfiduciary
40 capacity to designate a recipient of an ownership interest in or
41 another power of appointment over the appointive property. The
42 term does not include a power of attorney.
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1 Sec. 21. As used in this chapter, "powerholder" means a person
2 in which a donor creates a power of appointment.
3 Sec. 22. (a) As used in this chapter, "presently exercisable power
4 of appointment" means a power of appointment exercisable by the
5 powerholder at the relevant time.
6 (b) The term includes a power of appointment exercisable only
7 after the occurrence of a specified event, the satisfaction of an
8 ascertainable standard, or the passage of a specified time.
9 (c) The term does not include a power exercisable only at the
10 powerholder's death.
11 Sec. 23. As used in this chapter, "qualified beneficiary" has the
12 meaning set forth in IC 30-4-1-2(19).
13 Sec. 24. As used in this chapter, "reasonably definite standard"
14 means a clearly measurable standard under which a holder of a
15 power of distribution is legally accountable within the meaning of
16 26 U.S.C. 674(b)(5)(A) and applicable regulations.
17 Sec. 25. As used in this chapter, "record" means information
18 that is inscribed on a tangible medium or that is stored in an
19 electronic or other medium and is retrievable in perceivable form.
20 Sec. 26. As used in this chapter, "second trust" means:
21 (1) a first trust after modification under this chapter; or
22 (2) a trust to which a distribution of property from a first
23 trust is or may be made under this chapter.
24 Sec. 27. As used in this chapter, "second-trust instrument"
25 means the trust instrument for a second trust.
26 Sec. 28. (a) As used in this chapter, except as provided in section
27 55 of this chapter, "settlor" has the meaning set forth in
28 IC 30-4-1-2(21).
29 (b) If more than one (1) person creates or contributes property
30 to a trust, each person is a settlor of the portion of the trust
31 property attributable to the person's contribution except to the
32 extent another person has power to revoke or withdraw that
33 portion.
34 Sec. 29. As used in this chapter, "sign" means with present
35 intent to authenticate or adopt a record to:
36 (1) execute or adopt a tangible symbol; or
37 (2) attach to or logically associate with the record of an
38 electronic symbol, sound, or process.
39 Sec. 30. As used in this chapter, "state" means:
40 (1) a state of the United States;
41 (2) the District of Columbia;
42 (3) Puerto Rico;
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1 (4) the United States Virgin Islands; or
2 (5) a territory or insular possession subject to the jurisdiction
3 of the United States.
4 Sec. 31. As used in this chapter, "terms of the trust" has the
5 meaning set forth in IC 30-4-1-2(22).
6 Sec. 32. As used in this chapter, "trust instrument" has the
7 meaning set forth in IC 30-4-1-2(25). The term includes a written
8 document executed by the settlor to create a trust or by a person
9 to create a second trust that contains some or all of the terms of the
10 trust, including any amendments.
11 Sec. 33. (a) Except as provided in this chapter, an authorized
12 fiduciary may exercise the decanting power without the consent of
13 any person and without court approval.
14 (b) An authorized fiduciary shall act in accordance with its
15 fiduciary duties, including the duty to act in accordance with the
16 purposes of the first trust in exercising the decanting power.
17 (c) This chapter does not create or imply a duty to exercise the
18 decanting power or to inform beneficiaries about the applicability
19 of this chapter.
20 (d) Except as provided in a first-trust instrument, the terms of
21 the first trust are deemed to include the decanting power.
22 Sec. 34. A trustee or person that reasonably relies on:
23 (1) the validity of a distribution of the property of a trust to
24 another trust; or
25 (2) a modification of a trust under this chapter, law of this
26 state other than this article, or the law of another jurisdiction;
27 is not liable in an action for failure to act as a result of the reliance.
28 Sec. 35. (a) Except as provided in subsection (c), an authorized
29 fiduciary shall give notice in a record of the intended exercise of
30 the decanting power not later than sixty (60) days before the
31 exercise of the decanting power to:
32 (1) each settlor of the first trust, if living or then in existence;
33 (2) each qualified beneficiary of the first trust, including the
34 designated representative, if any, or other representative
35 under IC 30-4-6-10.5 of a qualified beneficiary who:
36 (A) is a minor or an incapacitated person;
37 (B) is unborn;
38 (C) is unknown; or
39 (D) cannot be located after a reasonably diligent search;
40 (3) each holder of a presently exercisable power of
41 appointment in the first trust;
42 (4) each person that currently has the right to remove or
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1 replace the authorized fiduciary;
2 (5) each fiduciary of the first trust;
3 (6) each fiduciary of the second trust; and
4 (7) the attorney general, if section 44(c) of this chapter
5 applies.
6 (b) A notice period under subsection (a) begins on the day that
7 the notice is given and ends fifty-nine (59) days later.
8 (c) An authorized fiduciary is not required to give notice under
9 subsection (a) to a person that:
10 (1) is not known to the fiduciary;
11 (2) is known to the fiduciary but cannot be located by the
12 fiduciary after a reasonably diligent search; or
13 (3) has no representative under IC 30-4-6-10.5.
14 (d) The decanting power may be exercised before expiration of
15 the notice period under subsection (a) if all persons entitled to
16 receive notice waive the notice period in a signed record.
17 Sec. 36. A notice under section 35 of this chapter must:
18 (1) specify the manner in which the authorized fiduciary
19 intends to exercise the decanting power;
20 (2) specify the proposed effective date for the exercise of the
21 decanting power;
22 (3) include a copy of the first-trust instrument; and
23 (4) include a copy of the second-trust instrument.
24 Sec. 37. (a) The receipt of notice, waiver of the notice period, or
25 expiration of the notice period does not affect the right of a person
26 to file a petition under section 39 of this chapter asserting that:
27 (1) an exercise of the decanting power:
28 (A) is ineffective because it did not comply with this
29 chapter;
30 (B) was an abuse of discretion; or
31 (C) was a breach of a fiduciary duty; or
32 (2) section 52 of this chapter applies to the exercise of the
33 decanting power.
34 (b) An exercise of the decanting power is not ineffective because
35 of the failure to give notice to one (1) or more persons under
36 section 35 of this chapter if the authorized fiduciary acted with
37 reasonable care to comply with section 35 of this chapter.
38 Sec. 38. (a) Notice to a person with authority to represent and
39 bind another person under a first-trust instrument or this article
40 has the same effect as notice given directly to the person
41 represented.
42 (b) Consent of or waiver by a person with authority to represent
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1 and bind another person under a first-trust instrument or this
2 article is binding on the person represented unless the person
3 represented objects to the representation before the consent or
4 waiver otherwise would become effective.
5 (c) A person with authority to represent and bind another
6 person under a first-trust instrument or this article may file a
7 petition under section 39 of this chapter on behalf of the person
8 represented.
9 (d) A settlor may not represent or bind a beneficiary under this
10 chapter.
11 Sec. 39. (a) Upon a petition by a person entitled to notice under
12 section 35 of this chapter or with respect to a charitable interest by
13 the attorney general or other person that has standing to enforce
14 the charitable interest, the court may:
15 (1) provide instructions to the authorized fiduciary about
16 whether a proposed exercise of the decanting power is
17 permitted under this chapter and consistent with the fiduciary
18 duties of the authorized fiduciary;
19 (2) appoint a special fiduciary and authorize the special
20 fiduciary to determine whether the exercise of the decanting
21 power is proper under this chapter and to exercise the
22 decanting power;
23 (3) approve an exercise of the decanting power;
24 (4) determine that a proposed or attempted exercise of the
25 decanting power is ineffective because:
26 (A) after applying section 52 of this chapter, the proposed
27 or attempted exercise does not comply with this chapter;
28 or
29 (B) the proposed or attempted exercise is an abuse of the
30 fiduciary's discretion or a breach of a fiduciary duty;
31 (5) determine the extent section 52 of this chapter applies to
32 a prior exercise of the decanting power;
33 (6) provide instructions to the trustee regarding the
34 application of section 52 of this chapter to a prior exercise of
35 the decanting power; or
36 (7) order relief to carry out the purposes of this chapter.
37 (b) Upon a petition by an authorized fiduciary, the court may
38 approve:
39 (1) an increase in the fiduciary's compensation under section
40 46 of this chapter; or
41 (2) a modification under section 48 of this chapter of a
42 provision granting a person the right to remove or replace the
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1 fiduciary.
2 Sec. 40. An exercise of the decanting power must be made in a
3 record signed by an authorized fiduciary. The signed record must:
4 (1) directly or indirectly reference the notice required by
5 section 35 of this chapter;
6 (2) identify the first trust and the second trust;
7 (3) identify and state the property of the first trust being
8 distributed to each second trust; and
9 (4) identify the property that remains in the first trust.
10 Sec. 41. (a) As used in this section, "noncontingent right" means
11 a right that is not subject to the:
12 (1) exercise of discretion; or
13 (2) occurrence of a specified event that is not certain to occur.
14 The term does not include a right held by a beneficiary if any
15 person has discretion to distribute property subject to the right of
16 any person other than the beneficiary or the beneficiary's estate.
17 (b) As used in this section, "presumptive remainder
18 beneficiary" means a qualified beneficiary other than a current
19 beneficiary.
20 (c) As used in this section, "successor beneficiary" means a
21 beneficiary that is not a qualified beneficiary on the date the
22 beneficiary's qualification is determined. The term does not include
23 a person that is a beneficiary only because the person holds a
24 nongeneral power of appointment.
25 (d) As used in this section, "vested interest" means a:
26 (1) right to a mandatory distribution that is a noncontingent
27 right as of the date of the exercise of the decanting power;
28 (2) current and noncontingent right, annually or more
29 frequently, to a mandatory distribution of income, a specified
30 dollar amount, or a percentage of value of some or all of the
31 trust property;
32 (3) current and noncontingent right, annually or more
33 frequently, to withdraw income, a specified dollar amount, or
34 a percentage of value of some or all of the trust property;
35 (4) presently exercisable general power of appointment; or
36 (5) right to receive an ascertainable part of the trust property
37 on the trust's termination that is not subject to the exercise of
38 discretion or to the occurrence of a specified event that is not
39 certain to occur.
40 (e) Subject to subsection (f) and section 44 of this chapter, an
41 authorized fiduciary that has expanded distributive discretion over
42 the principal of a first trust for the benefit of one (1) or more
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1 current beneficiaries may exercise the decanting power over the
2 principal of the first trust.
3 (f) Subject to section 43 of this chapter, an exercise of the
4 decanting power under this section must not:
5 (1) except as provided in subsection (g), include as a current
6 beneficiary a person that is not a current beneficiary of the
7 first trust;
8 (2) except as provided in subsection (g), include as a
9 presumptive remainder beneficiary or successor beneficiary
10 a person that is not a current beneficiary, presumptive
11 remainder beneficiary, or successor beneficiary of the first
12 trust; or
13 (3) reduce or eliminate a vested interest.
14 (g) Subject to subsection (f)(3) and section 44 of this chapter, in
15 an exercise of the decanting power under this subsection, a second
16 trust may be a trust created or administered under the law of any
17 jurisdiction and may:
18 (1) retain a power of appointment granted in the first trust;
19 (2) omit a power of appointment granted in the first trust,
20 other than a presently exercisable general power of
21 appointment;
22 (3) create or modify a power of appointment if the
23 powerholder is a current beneficiary of the first trust and the
24 authorized fiduciary has expanded distributive discretion to
25 distribute principal to the beneficiary; and
26 (4) create or modify a power of appointment if the
27 powerholder is a presumptive remainder beneficiary or
28 successor beneficiary of the first trust, but the exercise of the
29 power may take effect only after the powerholder becomes, or
30 would have become a current beneficiary.
31 (h) A power of appointment described in subsections (g)(1)
32 through (g)(4) may be general or nongeneral. The class of
33 permissible appointees in favor of which the power may be
34 exercised may be broader than or different from the beneficiaries
35 of the first trust.
36 (i) If an authorized fiduciary has expanded distributive
37 discretion over part of the principal of a first trust, the fiduciary
38 may exercise the decanting power under this section over the
39 principal that the authorized fiduciary has expanded distributive
40 discretion.
41 Sec. 42. (a) As used in this section, "limited distributive
42 discretion" means a discretionary power of distribution that is
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1 limited to an ascertainable standard or a reasonably definite
2 standard.
3 (b) An authorized fiduciary that has limited distributive
4 discretion over the principal of the first trust for the benefit of one
5 (1) or more current beneficiaries may exercise the decanting power
6 over the principal of the first trust.
7 (c) Under this section and subject to section 44 of this chapter,
8 a second trust may be created or administered under the law of
9 any jurisdiction. A second trust must grant each beneficiary of the
10 first trust beneficial interests that are substantially similar to the
11 beneficial interests of the beneficiary in the first trust.
12 (d) A power to make a distribution under a second trust for the
13 benefit of a beneficiary who is an individual is substantially similar
14 to a power under the first trust to make a distribution directly to
15 the beneficiary. A distribution is for the benefit of a beneficiary if:
16 (1) the distribution is applied for the benefit of the
17 beneficiary;
18 (2) the beneficiary is under a legal disability or the trustee
19 reasonably believes the beneficiary is incapacitated and the
20 distribution is made as permitted under this article; or
21 (3) the distribution is made as permitted under the terms of
22 the first-trust instrument and the second-trust instrument for
23 the benefit of the beneficiary.
24 (e) If an authorized fiduciary has limited distributive discretion
25 of the principal of a first trust, the fiduciary may only exercise the
26 decanting power under this section over the principal that the
27 authorized fiduciary has limited distributive discretion.
28 Sec. 43. (a) This section applies to any trust that has a
29 beneficiary with a disability, without limitation, whenever a
30 special-needs fiduciary for the trust determines that the beneficiary
31 with a disability may qualify for governmental benefits based on a
32 disability, whether the beneficiary currently receives those benefits
33 or has been adjudicated to be an incapacitated person under
34 IC 29-3.
35 (b) As used in this section, "governmental benefits" means
36 financial aid or services from a state, federal, or other public
37 agency.
38 (c) As used in this section, "special-needs fiduciary" means:
39 (1) a trustee or other fiduciary, other than a settlor, that has
40 discretion to distribute part or all of the principal of a first
41 trust to one or more current beneficiaries;
42 (2) if no trustee or fiduciary has discretion under subdivision
2022	IN 1205—LS 6169/DI 107 14
1 (1), a trustee or other fiduciary, other than a settlor, that has
2 discretion to distribute part or all of the income of the first
3 trust to one (1) or more current beneficiaries; or
4 (3) if no trustee or fiduciary has discretion under subdivisions
5 (1) and (2), a trustee or other fiduciary, other than a settlor,
6 that is required to distribute part or all of the income or
7 principal of the first trust to one (1) or more current
8 beneficiaries;
9 with respect to a trust that has a beneficiary with a disability.
10 (d) As used in this section, "special-needs trust" means a trust
11 that the trustee reasonably believes would not be considered a
12 resource for purposes of determining whether a beneficiary with
13 a disability is eligible for governmental benefits.
14 (e) A special-needs fiduciary may exercise the decanting power
15 under section 41 of this chapter over the principal of a first trust
16 as if the fiduciary had authority to distribute principal to a
17 beneficiary with a disability subject to expanded distributive
18 discretion if:
19 (1) a second trust is a special-needs trust or other trust that
20 benefits the beneficiary with a disability; and
21 (2) the special-needs fiduciary determines that an exercise of
22 the decanting power will further the purposes of the first
23 trust.
24 (f) In an exercise of the decanting power under this section, the
25 following rules apply:
26 (1) Except as provided in section 41(f)(2) of this chapter, the
27 interest in the second trust of a beneficiary with a disability
28 may:
29 (A) be a pooled trust as defined by Medicaid law for the
30 benefit of the beneficiary with a disability under 42 U.S.C.
31 1396p(d)(4)(C), as amended and in effect on July 1, 2022;
32 or
33 (B) contain payback provisions complying with
34 reimbursement requirements of Medicaid law under 42
35 U.S.C. 1396p(d)(4)(A), as amended and in effect on July 1,
36 2022.
37 (2) Section 41(f)(3) of this chapter does not apply to the
38 interests of the beneficiary with a disability.
39 (3) Except as affected by a change to the interests of the
40 beneficiary with a disability, the second trust, or if there are
41 two (2) or more second trusts, the second trusts in the
42 aggregate, must grant each other beneficiary of the first trust
2022	IN 1205—LS 6169/DI 107 15
1 beneficial interests in the second trusts which are
2 substantially similar to the beneficiary's beneficial interests in
3 the first trust.
4 Sec. 44. (a) As used in this section, "determinable charitable
5 interest" means a charitable interest that is a right to a mandatory
6 distribution currently, periodically, on the occurrence of a
7 specified event, or after the passage of a specified time and that is
8 unconditional or will be held solely for charitable purposes.
9 (b) As used in this section, "unconditional" means not subject
10 to the occurrence of a specified event that is not certain to occur,
11 other than a requirement in a trust instrument that a charitable
12 organization be in existence or qualify under a particular provision
13 of the United States Internal Revenue Code of 1986, as amended
14 and in effect on July 1, 2022, on the date of the distribution, if the
15 charitable organization meets the requirement on the date of
16 determination.
17 (c) If a first trust contains a determinable charitable interest,
18 the attorney general has the rights of a qualified beneficiary and
19 may represent and bind the charitable interest.
20 (d) If a first trust contains a charitable interest, the second trust
21 must not:
22 (1) diminish the charitable interest;
23 (2) diminish the interest of an identified charitable
24 organization that holds the charitable interest;
25 (3) alter any charitable purpose stated in the first-trust
26 instrument; or
27 (4) alter any condition or restriction related to the charitable
28 interest.
29 (e) If there are two (2) or more second trusts, the second trusts
30 shall be treated as one (1) trust for purposes of determining
31 whether the exercise of the decanting power diminishes the
32 charitable interest or diminishes the interest of an identified
33 charitable organization for purposes of subsection (d).
34 (f) If a first trust contains a determinable charitable interest, the
35 second trust that includes a charitable interest pursuant to
36 subsection (c) must be administered under the law of this state
37 unless:
38 (1) the attorney general, after receiving notice under section
39 35 of this chapter, fails to object in a signed record delivered
40 to the authorized fiduciary within the notice period;
41 (2) the attorney general consents in a signed record to the
42 second trust being administered under the law of another
2022	IN 1205—LS 6169/DI 107 16
1 jurisdiction; or
2 (3) the court approves the exercise of the decanting power.
3 (g) This chapter does not limit the powers and duties of the
4 attorney general under the laws of this state other than this
5 chapter.
6 Sec. 45. (a) An authorized fiduciary may not exercise the
7 decanting power to the extent the first-trust instrument expressly
8 prohibits exercise of:
9 (1) the decanting power; or
10 (2) a power granted by state law to the fiduciary to distribute
11 part or all of the principal of the trust to another trust or to
12 modify the trust.
13 (b) Exercise of the decanting power is subject to a restriction in
14 the first-trust instrument that expressly applies to exercise of:
15 (1) the decanting power; or
16 (2) a power granted by state law to a fiduciary to distribute
17 the principal of the trust to another trust or to modify the
18 trust.
19 (c) A general prohibition of the amendment or revocation of:
20 (1) a first trust;
21 (2) a spendthrift clause; or
22 (3) a clause;
23 restraining the voluntary or involuntary transfer of a beneficiary's
24 interest does not preclude exercise of the decanting power.
25 (d) Subject to subsections (a) and (b), an authorized fiduciary
26 may exercise the decanting power under this chapter even if the
27 first-trust instrument permits the authorized fiduciary or another
28 person to modify the first-trust instrument or to distribute the
29 principal of the first trust to another trust.
30 (e) If a first-trust instrument contains an express prohibition
31 described in subsection (a) or an express restriction described in
32 subsection (b), the provision must be included in the second-trust
33 instrument.
34 Sec. 46. (a) If a first-trust instrument specifies an authorized
35 fiduciary's compensation, the fiduciary may not exercise the
36 decanting power to increase the fiduciary's compensation above
37 the specified compensation unless:
38 (1) all qualified beneficiaries of the second trust consent to the
39 increase in a signed record; or
40 (2) the increase is approved by the court.
41 (b) If a first-trust instrument does not specify an authorized
42 fiduciary's compensation, the fiduciary may not exercise the
2022	IN 1205—LS 6169/DI 107 17
1 decanting power to increase the fiduciary's compensation above
2 the compensation permitted by this article unless:
3 (1) all qualified beneficiaries of the second trust consent to the
4 increase in a signed record; or
5 (2) the increase is approved by the court.
6 (c) A change in an authorized fiduciary's compensation that is
7 incidental to other changes made by the exercise of the decanting
8 power is not an increase in the fiduciary's compensation for
9 purposes of subsections (a) and (b).
10 Sec. 47. (a) Except as otherwise provided in this section, a
11 second-trust instrument must not relieve an authorized fiduciary
12 from liability for breach of trust to a greater extent than the
13 first-trust instrument.
14 (b) A second trust instrument may provide for indemnification
15 of an authorized fiduciary of the first trust or another person
16 acting in a fiduciary capacity under the first trust for any liability
17 or claim that would have been payable from the first trust if the
18 decanting power had not been exercised.
19 (c) A second-trust instrument must not reduce fiduciary liability
20 in the aggregate.
21 (d) Subject to subsection (c), a second-trust instrument may
22 divide and reallocate fiduciary powers among fiduciaries, including
23 one (1) or more trustees, distribution advisors, investment
24 advisors, trust protectors, or other persons, and relieve a fiduciary
25 from liability for an act or failure to act of another fiduciary as
26 permitted by the laws of this state other than this chapter.
27 Sec. 48. An authorized fiduciary must not exercise the decanting
28 power to modify a provision in a first-trust instrument granting
29 another person power to remove or replace the fiduciary unless:
30 (1) the person holding the power consents to the modification
31 in a signed record and the modification applies only to the
32 person;
33 (2) the person holding the power and the qualified
34 beneficiaries of the second trust consent to the modification in
35 a signed record and the modification grants a substantially
36 similar power to another person; or
37 (3) the court approves the modification and the modification
38 grants a substantially similar power to another person.
39 Sec. 49. (a) As used in this section, "grantor trust" means a trust
40 as to which a settlor of a first trust is considered the owner under
41 26 U.S.C. 671 through 677, as amended and in effect on July 1,
42 2022, or 26 U.S.C. 679, as amended and in effect on July 1, 2022.
2022	IN 1205—LS 6169/DI 107 18
1 (b) As used in this section, "Internal Revenue Code" means the
2 United States Internal Revenue Code of 1986, as amended and in
3 effect on July 1, 2022.
4 (c) As used in this section "nongrantor trust" means a trust that
5 is not a grantor trust.
6 (d) As used in this section, "qualified benefits property" means
7 property subject to the minimum distribution requirements of 26
8 U.S.C. 401(a)(9), as amended and in effect on July 1, 2022, and any
9 applicable regulations, or to any similar requirements that refer to
10 26 U.S.C. 401(a)(9) or the regulations.
11 (e) An exercise of the decanting power is subject to the following
12 limitations:
13 (1) If a first trust contains property that qualified, or would
14 have qualified but for provisions of this chapter other than
15 this section, for a marital deduction for purposes of the gift or
16 estate tax under the Internal Revenue Code or a state gift,
17 estate, or inheritance tax, the second-trust instrument must
18 not include or omit any term that, if included in or omitted
19 from the trust instrument for the trust to which the property
20 was transferred, would have prevented the transfer from
21 qualifying for the deduction, or would have reduced the
22 amount of the deduction, under the same provisions of the
23 Internal Revenue Code or state law under which the transfer
24 qualified.
25 (2) If the first trust contains property that qualified, or would
26 have qualified but for provisions of this chapter other than
27 this section, for a charitable deduction for purposes of the
28 income, gift, or estate tax under the Internal Revenue Code or
29 a state income, gift, estate, or inheritance tax, the second-trust
30 instrument must not include or omit any term that, if included
31 in or omitted from the trust instrument for the trust to which
32 the property was transferred, would have prevented the
33 transfer from qualifying for the deduction, or would have
34 reduced the amount of the deduction, under the same
35 provisions of the Internal Revenue Code or state law under
36 which the transfer qualified.
37 (3) If the first trust contains property that qualified, or would
38 have qualified but for provisions of this chapter other than
39 this section, for the exclusion from the gift tax described in 26
40 U.S.C. 2503(b), as amended and in effect on July 1, 2022, the
41 second-trust instrument must not include or omit a term that,
42 if included in or omitted from the trust instrument for the
2022	IN 1205—LS 6169/DI 107 19
1 trust to which the property was transferred, would have
2 prevented the transfer from qualifying under 26 U.S.C.
3 2503(b), as amended and in effect on July 1, 2022. If the first
4 trust contains property that qualified, or would have qualified
5 but for provisions of this chapter other than this section, for
6 the exclusion from the gift tax described in 26 U.S.C. 2503(b),
7 as amended and in effect on July 1, 2022, by application of 26
8 U.S.C. 2503(c), as amended and in effect on July 1, 2022, the
9 second-trust instrument must not include or omit a term that,
10 if included in or omitted from the trust instrument for the
11 trust to which the property was transferred, would have
12 prevented the transfer from qualifying under 26 U.S.C.
13 2503(c), as amended and in effect on July 1, 2022.
14 (4) If the property of the first trust includes shares of stock in
15 an S corporation, as defined in 26 U.S.C. 1361, as amended
16 and in effect on July 1, 2022, and the first trust is, or but for
17 provisions of this chapter other than this section would be, a
18 permitted shareholder under any provision of 26 U.S.C. 1361,
19 as amended and in effect on July 1, 2022, an authorized
20 fiduciary may exercise the power with respect to part or all of
21 the S corporation stock only if any second trust receiving the
22 stock is a permitted shareholder under 26 U.S.C. 1361(c)(2),
23 as amended and in effect on July 1, 2022. If the property of
24 the first trust includes shares of stock in an S corporation and
25 the first trust is or, but for provisions of this chapter other
26 than this section, would be a qualified subchapter S trust
27 within the meaning of 26 U.S.C. 1361(d), as amended and in
28 effect on July 1, 2022, the second-trust instrument must not
29 include or omit a term that prevents the second trust from
30 qualifying as a qualified subchapter S trust.
31 (5) If the first trust contains property that qualified, or would
32 have qualified but for provisions of this chapter other than
33 this section, for a zero (0) inclusion ratio for purposes of the
34 generation skipping transfer tax under 26 U.S.C. 2642(c), as
35 amended and in effect on July 1, 2022, the second-trust
36 instrument must not include or omit a term that, if included
37 in or omitted from the first-trust instrument, would have
38 prevented the transfer to the first trust from qualifying for a
39 zero (0) inclusion ratio under 26 U.S.C. 2642(c), as amended
40 and in effect on July 1, 2022.
41 (6) If the first trust is directly or indirectly the beneficiary of
42 qualified benefits property, the second-trust instrument may
2022	IN 1205—LS 6169/DI 107 20
1 not include or omit any term that, if included in or omitted
2 from the first-trust instrument, would have increased the
3 minimum distributions required with respect to the qualified
4 benefits property under 26 U.S.C. 401(a)(9), as amended and
5 in effect on July 1, 2022, and any applicable regulations, or
6 any similar requirements that refer to 26 U.S.C. 401(a)(9), as
7 amended and in effect on July 1, 2022, or the regulations. If
8 an attempted exercise of the decanting power violates this
9 subdivision, the trustee is deemed to have held the qualified
10 benefits property and any reinvested distributions of the
11 property as a separate share from the date of the exercise of
12 the power and section 52 of this chapter applies to the
13 separate share.
14 (7) If the first trust qualifies as a grantor trust because of the
15 application of 26 U.S.C. 672(f)(2)(A), as amended and in effect
16 on July 1, 2022, the second trust may not include or omit a
17 term that, if included in or omitted from the first-trust
18 instrument, would have prevented the first trust from
19 qualifying under 26 U.S.C. 672(f)(2)(A), as amended and in
20 effect on July 1, 2022.
21 (8) As used in this subdivision, "tax benefit" means a federal
22 or state tax deduction, exemption, exclusion, or other benefit
23 not otherwise listed in this section, except for a benefit arising
24 from being a grantor trust. Subject to subdivision (9), a
25 second-trust instrument may not include or omit a term that,
26 if included in or omitted from the first-trust instrument,
27 would have prevented qualification for a tax benefit if:
28 (A) the first-trust instrument expressly indicates an intent
29 to qualify for the benefit or the first-trust instrument is
30 clearly designed to enable the first trust to qualify for the
31 benefit; and
32 (B) the transfer of property held by the first trust or the
33 first trust qualified or, but for provisions of this chapter
34 other than this section, would have qualified for the tax
35 benefit.
36 (9) Subject to subdivision (4):
37 (A) except as provided in subdivision (7), the second trust
38 may be a nongrantor trust, even if the first trust is a
39 grantor trust; and
40 (B) except as otherwise provided in subdivision (10), the
41 second trust may be a grantor trust, even if the first trust
42 is a nongrantor trust.
2022	IN 1205—LS 6169/DI 107 21
1 (10) An authorized fiduciary may not exercise the decanting
2 power if a settlor objects in a signed record delivered to the
3 fiduciary within the notice period and:
4 (A) the first trust and a second trust are both grantor
5 trusts, in whole or in part, the first trust grants the settlor
6 or another person the power to cause the first trust to
7 cease to be a grantor trust, and the second trust does not
8 grant an equivalent power to the settlor or other person;
9 or
10 (B) the first trust is a nongrantor trust and a second trust
11 is a grantor trust, in whole or in part, with respect to the
12 settlor, unless:
13 (i) the settlor has the power at all times to cause the
14 second trust to cease to be a grantor trust; or
15 (ii) the first-trust instrument contains a provision
16 granting the settlor or another person a power that
17 would cause the first trust to cease to be a grantor trust
18 and the second-trust instrument contains the same
19 provision.
20 Sec. 50. (a) Subject to subsection (b), a second trust may have a
21 duration that is the same as or different from the duration of the
22 first trust.
23 (b) To the extent that property of a second trust is attributable
24 to property of the first trust, the property of the second trust is
25 subject to any rules governing maximum perpetuity, accumulation,
26 or suspension of the power of alienation that apply to property of
27 the first trust.
28 Sec. 51. An authorized fiduciary may exercise the decanting
29 power whether under the first trust's discretionary distribution
30 standard the fiduciary would have made or could have been
31 compelled to make a discretionary distribution of principal at the
32 time of the exercise.
33 Sec. 52. (a) If exercise of the decanting power would be effective
34 under this chapter except that the second-trust instrument in part
35 does not comply with this chapter, the exercise of the power is
36 effective and the following rules apply with respect to the principal
37 of the second trust attributable to the exercise of the power:
38 (1) A provision in the second-trust instrument that is not
39 permitted under this chapter is void to the extent necessary to
40 comply with this chapter.
41 (2) A provision required by this chapter to be in the
42 second-trust instrument that is not contained in the
2022	IN 1205—LS 6169/DI 107 22
1 instrument is deemed to be included in the instrument to the
2 extent necessary to comply with this chapter.
3 (b) If a trustee or other fiduciary of a second trust determines
4 that subsection (a) applies to a prior exercise of the decanting
5 power, the fiduciary shall take corrective action consistent with the
6 fiduciary's duties.
7 Sec. 53. (a) As used in this section, "animal trust" means a trust
8 or an interest in a trust created to provide for the care of one (1) or
9 more animals.
10 (b) As used in this section, "protector" means a person
11 appointed in an animal trust to enforce the trust on behalf of the
12 animal or, if no such person is appointed in the trust, a person
13 appointed by the court for that purpose.
14 (c) The decanting power may be exercised over an animal trust
15 that has a protector to the extent the trust could be decanted under
16 this chapter if each animal that benefits from the trust were an
17 individual, if the protector consents in a signed record to the
18 exercise of the power.
19 (d) A protector for an animal has the rights under this chapter
20 of a qualified beneficiary.
21 (e) If a first trust is an animal trust, in an exercise of the
22 decanting power, the second trust must provide that trust property
23 may be applied only to its intended purpose for the period the first
24 trust benefitted the animal.
25 Sec. 54. A reference in this article to a trust instrument or terms
26 of the trust includes a second-trust instrument and the terms of the
27 second trust.
28 Sec. 55. (a) For purposes of law of this state other than this
29 chapter and subject to subsection (b), a settlor of a first trust is
30 deemed to be the settlor of the second trust with respect to the
31 portion of the principal of the first trust subject to the exercise of
32 the decanting power.
33 (b) In determining settlor intent with respect to a second trust,
34 a settlor of the first trust, a settlor of the second trust, and the
35 authorized fiduciary may be considered.
36 Sec. 56. (a) Except as provided in subsection (c), if exercise of
37 the decanting power was intended to distribute all of the principal
38 of the first trust to one (1) or more second trusts, later discovered
39 property belonging to the first trust and property paid to or
40 acquired by the first trust after the exercise of the power is part of
41 the trust estate of the second trust.
42 (b) Except as provided in subsection (c), if exercise of the
2022	IN 1205—LS 6169/DI 107 23
1 decanting power was intended to distribute less than all of the
2 principal of the first trust to one (1) or more second trusts, later
3 discovered property belonging to the first trust or property paid to
4 or acquired by the first trust after exercise of the power remains
5 part of the trust estate of the first trust.
6 (c) An authorized fiduciary may provide in an exercise of the
7 decanting power or by the terms of a second trust for disposition
8 of later discovered property belonging to the first trust or property
9 paid to or acquired by the first trust after exercise of the power.
10 Sec. 57. A debt, liability, or other obligation enforceable against
11 property of a first trust is enforceable to the same extent against
12 the property when held by the second trust after exercise of the
13 decanting power.
14 Sec. 58. In applying and construing this uniform act,
15 consideration must be given to the need to promote uniformity of
16 the law with respect to its subject matter among states that enact
17 it.
18 Sec. 59. This chapter modifies, limits, or supersedes the
19 Electronic Signatures in Global and National Commerce Act, 15
20 U.S.C. 7001 as amended and in effect on July 1, 2022, but does not
21 modify, limit, or supersede Section 101(c) of that act, 15 U.S.C.
22 7001(c) as amended and in effect on July 1, 2022, or authorize
23 electronic delivery of any of the notices described in Section 103(b)
24 of that act, 15 U.S.C. 7003(b) as amended and in effect on July 1,
25 2022.
26 Sec. 60. If any provision of this chapter or its application to any
27 person or circumstance is held invalid, the invalidity does not affect
28 other provisions or applications of this chapter that can be given
29 effect without the invalid provision or application, and to this end
30 the provisions of this chapter are severable.
31 SECTION 4. IC 34-30-2-132.7 IS ADDED TO THE INDIANA
32 CODE AS A NEW SECTION TO READ AS FOLLOWS
33 [EFFECTIVE JULY 1, 2022]: Sec. 132.7. IC 30-4-10-34 (Concerning
34 a trustee who reasonably relies on a distribution or modification of
35 a trust that transfers property to a second trust and does not act).
2022	IN 1205—LS 6169/DI 107