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STATE OF OKLAHOMA
1st Session of the 58th Legislature (2021)
SENATE BILL 162 By: Howard
AS INTRODUCED
An Act relating to trusts; creating the Oklah oma
Decanting Act; providing short title; clarifying
applicability of act; defining terms; establishing
requirements for distributions by a trustee with full
discretion; authorizing grant of power of
appointment; establishing requirements for
distributions by a trustee with limited discre tion;
defining terms; stating powers of s pecial-needs
fiduciary under certain circumstances; requiring
notice to beneficiaries before certain distributions;
establishing requirements for certain notice;
providing exceptions to certain notice requirement;
specifying required contents of certain no tice;
requiring written instrument for certain
distributions; clarifying certain reference;
clarifying status of certain settlor; establishing
procedures for court -ordered distributions; providing
for distributions from trustees with divided
discretion; providing for distribution of
subsequently discovered assets; construing
provisions; authorizing certain distributions
regardless of need; clarifying that provisions create
no duty; prohibiting certain distributions; providing
exceptions; prohibiting certain distributions
resulting in reduced tax benefits; establishing
requirements for certain compensation; providing for
codification; and providing an effective date .
BE IT ENACTED BY THE PEOPLE OF THE STATE OF OKLAHOMA:
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SECTION 1. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 175.701 of Title 60, unless
there is created a duplication in numbering, reads as follows:
SHORT TITLE
This act shall be known and may be cited as the “Oklahoma
Decanting Act” and shall apply to any trust administered under the
laws of this state including a trust whose governing jurisdiction is
transferred to this state.
SECTION 2. NEW LAW A new section of law to b e codified
in the Oklahoma Statutes as Section 175.702 of Title 60, unless
there is created a duplication in numbering, reads as follows:
DEFINITIONS
As used in this act, unless the context or subject matt er
otherwise requires:
1. “Authorized trustee” means a person, other than the se ttlor,
who has authority under the terms of a first trust to distribute the
principal or income of the trust to or for the benefit of one or
more current beneficiaries or a special need s fiduciary under
Section 5 of this act;
2. “Charity” means a charitable organization or a charitable
trust, as those terms are defined by Section 301.3 of Title 60 of
the Oklahoma Statute s or Section 552.2 of Title 18 of the Oklahoma
Statutes;
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3. “Current beneficiary” with respect to a particular date,
means a person who i s receiving or is eligible to receive a
distribution of income or prin cipal from a trust on that date;
4. “First trust” means an existing irrevocabl e inter vivos or
testamentary trust all or part of the principal of which is
distributed in further trust under Section 3 or 4 of this act;
5. “Full discretion” means a power to distribute principal or
income to or for the benefit of one or more of the beneficiaries of
a trust that is not a trust wit h limited discretion;
6. “Limited discretion” means:
a. a power to distribute principal or income according to
mandatory distribution provisions under whic h the
trustee has no discretion, or
b. a power to distribute principal or income to or for
the benefit of one or more be neficiaries of a trust
that is limited by an ascertainable standard,
including the health, education, support or
maintenance of the beneficiary;
7. “Presumptive remainder beneficiary, ” with respect to a
particular date, means a b eneficiary of a trust on t hat date who, in
the absence of notice to the trustee of the exercise of the power of
appointment and assuming that any other powers of appointment under
the trust are not exercised, would be eligible to receive a
distribution from the trust if:
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a. the trust terminated on that date, or
b. the interests of all current beneficiaries ended on
that date without causing the trust to terminate;
8. “Principal” means property held in trust for dis tribution
including accumulated income, that, at the time of the exercise of a
power of distribution under Section 3 or 4 of this act, is not
currently required to be distributed;
9. “Second trust” means any irrevocable trust to which
principal is distributed under Section 3 or 4 of this act; and
10. “Successor beneficiary ” means a beneficiary other than a
current or presumptive remainder beneficiary. The term does not
include a potential appointe e under a power of appointment held by a
beneficiary.
SECTION 3. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Sectio n 175.703 of Title 60, unless
there is created a duplication in numbering, reads as follo ws:
DISTRIBUTION TO SECOND TRUST: TRUSTEE WITH FULL DISCRETION
A. An authorized trustee who has the full discretion to
distribute the principal or income of a trust may distribute all or
part of the principal of that trust in favor of a trustee of a
second trust for the benefit of one, more than one, or all of the
current beneficiaries of the first trust and for the benefit of one,
more than one, or all of the success or or presumptive remainder
beneficiaries of the first trust.
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B. The authorized trustee may, in con nection with the exercise
of a power of distribution under this sectio n, grant a power of
appointment including a currently ex ercisable power of appointmen t,
in the second trust to one or more of the current beneficiaries of
the first trust who, at the ti me the power of appointment is
granted, is eligible to receive a distribution of principal under
the terms of the first trust.
C. If the authorized trustee grants a power of appointment to a
beneficiary under subsection B of this section, the class of
permissible appointees in whose favor the beneficia ry may appoint
under that power may be broader or different than the current,
successor, and presumptive rem ainder beneficiaries of the first
trust.
D. If the beneficiaries of the first trust are described as a
class of persons, the beneficiaries of the s econd trust may include
one or more persons who become members of that class af ter the
distribution to the s econd trust.
E. The authorized trustee shall exercise a power to distribute
under this section in good f aith, in accordance with the terms and
purposes of the trust, and in t he interests of the beneficiaries.
SECTION 4. NEW LAW A n ew section of law to be codified
in the Oklahoma Statutes as Section 175.704 of Title 60, unless
there is created a duplication in numbering, reads as follows:
DISTRIBUTION TO SECOND TRUST: TRUSTEE WITH LIMITED DISCRETION
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A. An authorized trustee who has limited discretion to
distribute the principal of a trust may distribute all or part of
the principal of that trust in favor of a trustee of a seco nd trust
as provided by this section.
B. The current beneficiaries of the second trust shall be
substantially the same as the current beneficiaries of the first
trust, and the successor and presumptive remainder b eneficiaries of
the second trust shall be substantially the same as the successor
and presumptive remainder beneficiar ies of the first trust, as
determined in the reasonable discretion of the au thorized trustee.
C. If the beneficiaries of the first trust are described as a
class of persons, the be neficiaries of the second t rust shall
include substantially the same persons who become members of that
class after the distribution to the second trust , as determined in
the reasonable discretion of the au thorized trustee.
D. If the first trust grants a power of appointment to a
beneficiary of the trust, the second tr ust shall grant the power of
appointment to the beneficiary in the second trust, and the class of
permissible appointees under that power shall be the same as the
class of permissible appointees under the power granted by the first
trust.
E. The exercise of a power of distribution under this section
shall be made by the authorized trustee in good faith, in accordance
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with the terms and purposes of the trust, and in the interests of
the beneficiaries.
SECTION 5. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 175.705 of Title 60, unless
there is created a duplication in numbering, reads as follows:
TRUST FOR BENEFICIARY WITH DISABILITY
A. As used in this act:
1. “Beneficiary with a disability ” means a beneficiary of a
first trust who the spec ial-needs fiduciary believes may qualify for
governmental benefits based on di sability, whether or not the
beneficiary currently receives those benefits or is an individual
who has been adjudicated incompetent ;
2. “Governmental benefits” means financial aid or services from
a state, federal, or other pub lic agency;
3. “Special-needs fiduciary” means, with respect to a trust
that has a beneficiar y with a disability:
a. a trustee or other fiduciary, other than a settlor,
that has discretion to distribute pa rt or all of the
principal of a first trust to one or more current
beneficiaries,
b. if no trustee or fiduciary has discretion under
subparagraph a of this section, a trustee or other
fiduciary, other than a settlor, that has d iscretion
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to distribute part or all of the income of the first
trust to one or more current beneficiaries, or
c. if no trustee or fiduciary has discretion under
subparagraphs a and b of this section, a trustee or
other fiduciary, other than a settlor, that is
required to distribute pa rt or all of the income or
principal of the first trust to one or more current
beneficiaries; and
4. “Special-needs trust” means a trust the tr ustee believes
would not be considered a resource for purposes of determining
whether a beneficiary with a disab ility is eligible for governmental
benefits.
B. A special-needs fiduciary may exercise the decanting power
under Section 3 of this act over the principal of a first trust as
if the fiduciary had authority to distribute princip al to a
beneficiary with a di sability subject to expanded distributive
discretion if:
1. A second trust is a special-needs trust that benefits the
beneficiary with a disabi lity; and
2. The special-needs fiduciary determines that exercise of the
decanting power will further the purpo ses of the first trust.
C. In an exercise of the decanting power under this s ection,
the following rules apply:
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1. Notwithstanding Section 3 o f this act, the interest in the
second trust of a beneficiary with a disability may :
a. be a pooled trust as def ined by Medicaid law for the
benefit of the benefi ciary with a disability unde r 42
U.S.C., Section 1396p(d)(4)(C), as amended, or
b. contain payback provisions complying with
reimbursement requirements of Medicaid law under 42
U.S.C., Section 1396p(d)(4)(A), as amended; and
2. Except as affected by any c hange to the interests of th e
beneficiary with a disability, the second trust, or if there are two
or more second trusts, the second trusts in the aggregate, shall
comply with Section 3 or 4 of this act with respect to the interest
or interests of each other current beneficiary, pres umptive
remainder beneficiary, or successor beneficiary.
SECTION 6. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 175. 706 of Title 60, unless
there is created a duplica tion in numbering, reads as follows:
NOTICE REQUIRED
A. An authorized trustee may exercise a power of distribution
under Section 3 or 4 of this act without the consent of the s ettlor
or beneficiaries of th e first trust and without court approval if
the trustee provides to all of the current beneficiaries and
presumptive remainder beneficiaries w ritten notice of the trustee ’s
decision to exercise the power.
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B. For the purpose of determining who is a current beneficiary
or presumptive remainder beneficiary entitled to the notice, a
beneficiary is determined as of the date the notice is sent. A
beneficiary includes a person entitled to receive property under the
terms of the first trust.
C. Except as provided by paragraph 5 of subsection E of this
section, in addition to the notice required under subsection A of
this section, the authorized truste e shall give written notice of
the trustee’s decision to the attorney general if:
1. A charity is entitled to not ice;
2. A charity entitled to notice is no longer in existence;
3. The trustee has the authority to distribute trust assets to
one or more charities that are not named in the trust instrument; or
4. The trustee has the autho rity to make distributions fo r a
charitable purpose described in the trust inst rument, but no charity
is named as a beneficiary for that purpose.
D. If the beneficiary ha s a court-appointed guardian or
conservator, the notice required to b e given by this section shall
be given to that guardian or conservator. If the beneficiary is a
minor for whom no guardian or conservator has been appointed, the
notice required to be given by this section shall be given to a
parent of the minor. For purposes of paragra ph 3 of subsection E of
this section, a beneficiary is considered to have waive d the
requirement that notic e be given under this section if a person to
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whom notice is required to be given with respect to that be neficiary
under this subsection waives the requirement that notice be given
under this section.
E. The authorized trustee i s not required to provide no tice:
1. To a beneficiary who is known to the trustee and canno t be
located by the trustee after reasonable diligence;
2. To a beneficiary who is n ot known to the trustee;
3. To a beneficiary who waives the requirement of the notice
under this section;
4. To a beneficiary who is a descendant of a beneficiary to
whom the trustee has given notice if the beneficiary and the
beneficiary’s ancestor have similar interests in the tru st and no
apparent conflict of interest exists between them; or
5. To the attorney general under subsection C of this s ection
if the attorney general waives that requirement in writing.
F. The notice required under subsection A of this section
shall:
1. Include a statement that:
a. the authorized trustee intends to exercise the p ower
of distribution,
b. the beneficiary has the right to obje ct to the
exercise of the power, and
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c. the beneficiary may petition a court to approve ,
modify, or deny the exercis e of the trustee’s power to
make a distribution un der this act;
2. Describe the manner in which the trustee intends to exercise
the power;
3. Specify the date the trustee proposes to distribute the
first trust to the second t rust;
4. Include the name and mailing address of the trustee;
5. Include copies of the agreements of the first trust and the
proposed second trust;
6. Be given not later than the ninetieth day before the
proposed date of distribution to the second trust ; and
7. Be sent by registered or certified mail, return receipt
requested, or delivered in person, unless the notice is waived in
writing by the person to whom notice is required to be given.
SECTION 7. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 175.707 of Title 60, unless
there is created a dupli cation in numbering, reads as follows:
WRITTEN INSTRUMENT REQUIR ED
A distribution under Section 3 or 4 of this act shall be made by
a written instrument that is signed and acknow ledged by the
authorized trustee and filed with th e records of the first trust and
the second trust.
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SECTION 8. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Sect ion 175.708 of Title 60, unless
there is created a duplication in numbering, reads as follow s:
REFERENCE TO TRUST TERMS
A reference to the governing instrument or terms of the
governing instrument of a trust includes the terms of a second trust
to which that trust’s principal was distributed under this act.
SECTION 9. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 175.709 of Titl e 60, unless
there is created a duplication in numbering, reads as follows:
SETTLOR OF SECOND TRUST
A. Except as provided by subsection B of this section, the
settlor of a first trust is consi dered to be the settlor of a second
trust established under thi s act.
B. If a settlor of a first trust is not also the settlor of a
second trust into which principal of that fir st trust is
distributed, the settlor of the first trust is considered the
settlor of the portion of the second trust distributed to the secon d
trust from that first trust under this a ct.
SECTION 10. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 175. 710 of Title 60, unless
there is created a duplication in numbering, reads as follows:
COURT-ORDERED DISTRIBUTION
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A. An authorized trustee may petition a court to o rder a
distribution under this act.
B. If the authorized trustee receives a written object ion to a
distribution under this act from a beneficiary before the proposed
effective date of the distribution specified in the notice provided
to the beneficiary under Section 6 of this act, the trustee or the
beneficiary may petition a court to approve, modify, or deny the
exercise of the trustee’s power to make a distribution under this
act.
C. If the authorized trustee receives a written objection to
the distribution from th e attorney general not later than the
thirtieth day after the date the notice required by Section 6 of
this act was received by the attorney general, the trustee shall not
make a distribution under Sectio n 3 or 4 of this act without
petitioning a court to approve or modify the exercis e of the
trustee’s power to make a distribution under this act.
D. In a judicial proceeding under this section, the authorized
trustee may present the trustee’s reasons for supporting or opposing
a proposed distribution, inclu ding whether the trustee beli eves the
distribution would enable the trustee to better carry out the
purposes of the trust.
E. The authorized trustee has the burden of p roving that the
proposed distribution furthers the purposes of the trust, is not
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expressly prohibited by the terms of the trust, and is in the
interests generally of the beneficiaries.
F. This section does not li mit a beneficiary’s right to bring
an action against a trustee for a breach of trust.
SECTION 11. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 175.711 of Title 60, unless
there is created a duplicat ion in numbering, reads as follows:
DIVIDED DISCRETION
If an authorized trustee has full discretion to distribute the
principal of a trust and another trustee has limited discretion to
distribute principal under the trust instru ment, the authorized
trustee having full discretion may exercise the power to di stribute
the trust’s principal under Section 3 of this act .
SECTION 12. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 1 75.712 of Title 60, unless
there is created a duplication in numbering, reads as follows:
LATER DISCOVERED ASS ETS
To the extent the authorized trustee does no t provide otherwise:
1. The distribution of all of the principal of a first trust to
a second trust includes subsequently dis covered assets otherwise
belonging to the first trus t and principal paid to or acquired by
the first trust after the distribution of the first trust’s
principal to the second trust; and
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2. The distribution of part of the princi pal of a first trust
to a second trust does not include subsequently discovered assets
belonging to the first trust or principal paid to or acquired by the
first trust after the dis tribution of principal from the first trust
to the second trust, and those assets or that principal rem ain the
assets or principal of the first trust.
SECTION 13. NEW LAW A new section of law to be codified
in the Oklahoma Statutes a s Section 175.713 of Title 60, unless
there is created a duplication in num bering, reads as follows:
OTHER AUTHORITY TO DISTRIBUTE IN FURTHER TRUST NOT LIM ITED
This act shall not be construed to limit the power of an
authorized trustee to distribute proper ty in further trust under the
terms of the governing instrument of a trust, other law, or a court
order.
SECTION 14. NEW LAW A new s ection of law to be codified
in the Oklahoma Statutes as Section 175.714 of Ti tle 60, unless
there is created a duplication in numbering, reads as follows:
NEED FOR DISTRIBUTIO N NOT REQUIRED
An authorized trustee may exercise the power to distribute
principal to a second trust under Section 3 or 4 of this act
regardless of whether t here is a current nee d to distribute
principal under the terms of the first trust.
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SECTION 15. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 175.715 of Title 60, unless
there is created a duplication in numbering, reads as follows:
DUTIES NOT CREATED
A. This act does not create or imply a duty f or an authorized
trustee to exercise a power to distribute principal, and improp riety
shall not be inferred as a result of the trustee not exercising a
power conferred by Section 3 or 4 of this act.
B. An authorized trustee does not have a duty to inform
beneficiaries about the avai lability of the authority provided by
this act or a duty to review the trust to determine whether any
action should be taken under this act.
SECTION 16. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 175.716 of Title 60, unless
there is created a dupli cation in numbering, reads as follows:
CERTAIN DISTRIBUTIONS PROHIBITED
A. Except as provided by subsection B of this section, an
authorized trustee shall not exercise a power to distribute
principal of a trust otherwise provided by Section 3 or 4 of this
act if the distribution is expressly prohibited by the terms of the
governing instrument of the trust.
B. A general prohibition of the amendment or revocation of a
trust or a provision that constitutes a spendthrift clause shall not
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preclude the exercise of a power to distribute principal o f a trust
under Section 3 or 4 of this act.
SECTION 17. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 175.717 of Title 60, unless
there is created a duplication i n numbering, reads as follows:
EXCEPTIONS TO POWER OF DISTRIBUTION
An authorized trustee shall not exercise a power to distribute
principal of a trust under Section 3 or 4 of this act to:
1. Reduce, limit, or modify a beneficiary’s current, vested
right to:
a. receive a mandatory dist ribution of income or
principal,
b. receive a mandatory annuity or unitrust interest,
c. withdraw a percentage of the value of the trust, or
d. withdraw a specified dollar am ount from the trust;
2. Materially limit a trustee ’s fiduciary duty:
a. under the terms of the trust, or
b. in a manner that woul d be prohibited by the Oklahoma
Trust Act, Section 175.1 et seq. of Title 60 of the
Oklahoma Statutes, the Oklahoma Prudent In vestor Act,
Section 175.60 et seq. of Title 60 of the Oklahoma
Statutes, the Oklahoma Principal and Income Act,
Section 175.101 et seq. of Title 60 of the Oklahoma
Statutes, or the Oklahoma Charitable Fiduciary Act,
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Section 301.1 et seq. of Title 60 of the Oklahoma
Statutes;
3. Decrease or indemnify agains t a trustee’s liability or
exonerate a trustee from liability;
4. Add a provision exonerating a trustee for failure to
exercise reasonable care, diligence, and prudence;
5. Eliminate a provision grantin g another person the right to
remove or replace the authorized trustee exercising the distribut ion
power under Section 3 or 4 of this act; or
6. Reduce, limit, or modify in the second trust a perpetuities
provision included in the first trust, unless expr essly permitted by
the terms of the first trust.
SECTION 18. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 175.718 of Title 60, unless
there is created a duplication in nu mbering, reads as follows:
TAX-RELATED LIMITATIONS
A. The authorized trustee sh all not distribute the principal o f
a trust under Section 3 or 4 of this act in a manner that would
prevent a contribution to that trust from qualifying for or that
would reduce the exclusion, deduction, or other federal tax benefit
that was originally cla imed for that contribution, including:
1. The annual exclusion under Section 2503(b) of the Internal
Revenue Code of 1986, as amended;
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2. A marital deduction under Section 20 56(a) or 2523(a) of the
Internal Revenue Code of 1986, as amended;
3. The charitable deduction under Section 170(a), 642(c),
2055(a), or 2522(a) of the Inter nal Revenue Code of 1986, as
amended;
4. Direct skip treatment under Section 2642(c) of the Inter nal
Revenue Code of 1986, as amended; or
5. Any other tax benefit for income, g ift, estate, or
generation-skipping transfer tax purposes under the Internal R evenue
Code of 1986, as amended.
B. Notwithstanding subsection A of this section, an authorized
trustee may distribute the pr incipal of a first trust to a second
trust regardless of whether the settlor is treated as the owner of
either or both trusts unde r the Internal Revenue Code, 26 U.S.C.,
Sections 671 through 679, as amended.
C. If S corporation stock is held in trust, an authorized
trustee shall not distribute all or part of that stock under Section
3 or 4 of this act to a second trust that is not a permitted
shareholder under the Internal Revenue Code, 26 U.S.C., Section
1361(c)(2), as amended.
D. If an interest in prope rty that is subject to the minimum
distribution rules of the Internal Revenue Code, 26 U.S.C., Section
401(a)(9), as amended, is h eld in trust, an authorized trustee shall
not distribute the trust’s interest in the property to a second
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trust under Section 3 or 4 of this act if the distribution would
shorten the minimum distribution period applicable to the property.
SECTION 19. NEW LAW A new section of law to be codified
in the Oklahoma Statutes as Section 175.719 of Title 60, unless
there is created a duplication in numbering, reads a s follows:
COMPENSATION OF TRUSTEE
A. Except as provided by subsection B of t his section and
unless a court, on application of the authorized trustee, directs
otherwise, the trustee shall not exercise a power under Section 3 or
4 of this act solely to change trust provisions regarding the
determination of the compensation of any tr ustee.
B. An authorized trustee, in connection with the exercise of a
power under Section 3 or 4 of this act for another valid and
reasonable purpose, may bring the trustee ’s compensation into
conformance with reasonable limits authorized by state law.
C. The compensation payable to an authorized trustee of the
first trust may continue to be paid to the trustee of the second
trust during the term of the second trust and may be d etermined in
the same manner as the compensation would have been determined in
the first trust.
D. An authorized trustee shall not receive a commission or
other compensation f or the distribution of a par ticular asset from a
first trust to a sec ond trust under Section 3 or 4 of this act.
SECTION 20. This act shall be come effective November 1, 2021.
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58-1-29 TEK 12/17/2020 5:09:06 PM