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HOUSE OF REPRESENTATIVES - FLOOR VERSION
STATE OF OKLAHOMA
1st Session of the 58th Legislature (2021)
ENGROSSED SENATE
BILL NO. 162 By: Howard of the Senate
and
McEntire of the House
An Act relating to trusts; creating the Oklahoma
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 discretion;
defining terms; stating powers of special -needs
fiduciary under certain circumstances; requiring
notice to beneficiaries before certain distributions;
establishing requirements for certain notice;
providing exceptions to certain no tice requirement;
specifying required contents of certain notice;
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 cert ain distributions; providing
exceptions; prohibiting certain distributions
resulting in reduced tax benefits; establishing
requirements for certain compensation; providing for
codification; and providing an effective date .
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BE IT ENACTED BY THE PEOPLE O F THE STATE OF OKLAHOMA:
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 be 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 matter
otherwise requires:
1. “Authorized trustee” means a person, other than the settlor,
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 needs 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 Statutes 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 is receiving or is eligible to receive a
distribution of income or principal from a trust on that date;
4. “First trust” means an existing irrevocable inter vivos or
testamentary trust all or part of the pr incipal 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 with limited d iscretion;
6. “Limited discretion” means:
a. a power to distribute principal or income according to
mandatory distribution provisions under which the
trustee has no discretion, or
b. a power to distribute principal or income to or for
the benefit of one o r more beneficiaries 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 beneficiary of a t rust on that 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 distribution
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 appointee 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 Section 175.703 of Title 60, unless
there is created a duplication in numbering, reads as follows:
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 be nefit of one,
more than one, or all of the successor or presumptive remainder
beneficiaries of the first trust.
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B. The authorized trustee may, in connection with the exercise
of a power of distribution under this section, grant a power of
appointment including a currently exercisable power of appointment,
in the second trust to one or more of the current beneficiaries of
the first trust who, at the time 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 beneficiary may appoint
under that power may be broader or different than the current,
successor, and presumptive remainder beneficiaries of the first
trust.
D. If the beneficiaries of the first trust are described as a
class of persons, the beneficiaries of the second trust may include
one or more persons who become memb ers of that class after the
distribution to the second trust.
E. The authorized trustee shall exercise a power to distribute
under this section in good faith, in accordance with the terms and
purposes of the trust, and in the interests of the beneficiarie s.
SECTION 4. NEW LAW A new 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 second trust
as provided by this section.
B. The current benef iciaries of the second trust shall be
substantially the same as the current beneficiaries of the first
trust, and the successor and presumptive remainder beneficiaries of
the second trust shall be substantially the same as the successor
and presumptive remainder beneficiaries of the first trust , as
determined in the reasonable discretion of the authorized trustee .
C. If the beneficiaries of the first trust are described as a
class of persons, the beneficiaries of the second trust shall
include substantiall y the same persons who become members of that
class after the distribution to the second trust , as determined in
the reasonable discretion of the authorized trustee .
D. If the first trust grants a power of appointment to a
beneficiary of the trust, the se cond trust 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 special -needs fiduciary believes may qualify for
governmental benefits based on disability, whether or not the
beneficiary currently receives those benefits or is an individual
who has been adjudicated incompete nt;
2. “Governmental benefits ” means financial aid or services from
a state, federal, or other public agency;
3. “Special-needs fiduciary” means, with respect to a trust
that has a beneficiary with a disability:
a. a trustee or other fiduciary, other tha n a settlor,
that has discretion to distribute part or all of the
principal of a first trust to one or more current
beneficiaries,
b. if no trustee or fiduciary has discretion under
subparagraph a of this section, a trustee or other
fiduciary, other than a settlor, that has discretion
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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 part 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 trustee believes
would not be considered a resource for purposes of determining
whether a beneficiary with a disability is eligible for governmental
benefits.
B. A special-needs fiduciary may exercise the decanting power
under Section 3 of this act over the principal of a first trust as
if the fiduciary had authority t o distribute principal to a
beneficiary with a disability subject to expanded distributive
discretion if:
1. A second trust is a special -needs trust that benefits the
beneficiary with a disability; and
2. The special-needs fiduciary determines that exerc ise of the
decanting power will further the purposes of the first trust.
C. In an exercise of the decanting power under this section,
the following rules apply:
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1. Notwithstanding Section 3 of this act, the interest in the
second trust of a beneficiary w ith a disability may:
a. be a pooled trust as defined by Medicaid law for the
benefit of the beneficiary with a disability under 42
U.S.C., Section 1396p(d)(4)(C), as amended, or
b. contain payback provisions complying with
reimbursement requirements of Me dicaid law under 42
U.S.C., Section 1396p(d)(4)(A), as amended; and
2. Except as affected by any change to the interests of the
beneficiary with a disability, the second trust, or if there are two
or more second trusts, the second trusts in the aggregate, shall
comply with Section 3 or 4 of this act with respect to the interest
or interests of each other current beneficiary, presumptive
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 duplication 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 settlor
or beneficiaries of the first trust and without court approval if
the trustee provides to all of the current beneficiaries and
presumptive remainder beneficiaries written 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 th e
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 trustee shall give written notice of
the trustee’s decision to the atto rney general if:
1. A charity is entitled to notice;
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 authority to make distributions for a
charitable purpose described in the trust instrument, but no charity
is named as a beneficiary for that purpose.
D. If the beneficiary has a court -appointed guardian or
conservator, the notice required to be 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 paragraph 3 of subsection E of
this section, a beneficiary is considered to have waived the
requirement that notice be given under this section if a person to
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whom notice is required to be given with respect to that beneficiary
under this subsection waives the requirement that notice be given
under this section.
E. The authorized trustee is not required to provide notice:
1. To a beneficiary who is known to the trustee and cannot be
located by the trustee after reasonable diligence;
2. To a beneficiary who is not 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 trust and no
apparent conflict of interest exists between them; or
5. To the attorney general under subsection C of this section
if the attorney general waives that requirement in writing.
F. The notice requi red under subsection A of this section
shall:
1. Include a statement that:
a. the authorized trustee intends to exercise the power
of distribution,
b. the beneficiary has the right to object to the
exercise of the power, and
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c. the beneficiary may petitio n a court to approve,
modify, or deny the exercise of the trustee ’s power to
make a distribution under 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 trust;
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 duplication in numbering, reads as follows:
WRITTEN INSTRUMENT REQUIRED
A distribution under Section 3 or 4 of this act shall be made by
a written instrument that is signed and acknowledged by the
authorized trustee and filed with the 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 Section 175.708 of Title 60, unless
there is created a duplication in numbering, reads as follows:
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 Title 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 considered to be the settlor of a second
trust established under this act.
B. If a settlor of a first trust is not also the settlor o f a
second trust into which principal of that first trust is
distributed, the settlor of the first trust is considered the
settlor of the portion of the second trust distributed to the second
trust from that first trust under this act.
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 co urt to order a
distribution under this act.
B. If the authorized trustee receives a written objection 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 the 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 Section 3 or 4 of this act without
petitioning a court to approve or modify the exercise 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, including whether the trustee believes the
distribution would enable the trustee to better carry out the
purposes of the trust.
E. The authorized trustee has the burden of proving 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 limit 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 duplication in numbering, reads as follows:
DIVIDED DISCRETION
If an authorized trustee has full discretion to distrib ute the
principal of a trust and another trustee has limited discretion to
distribute principal under the trust instrument, the authorized
trustee having full discretion may exercise the power to distribute
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 175.712 of Title 60, unless
there is created a duplication in numbering, reads as follows:
LATER DISCOVERED ASSETS
To the extent the author ized trustee does not provide otherwise:
1. The distribution of all of the principal of a first trust to
a second trust includes subsequently discovered assets otherwise
belonging to the first trust 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 principal of a first trust
to a second trust does not include subsequently discovered assets
belonging to the first trust or principal paid to o r acquired by the
first trust after the distribution of principal from the first trust
to the second trust, and those assets or that principal remain the
assets or principal of the first trust.
SECTION 13. NEW LAW A new section of la w to be codified
in the Oklahoma Statutes as Section 175.713 of Title 60, unless
there is created a duplication in numbering, reads as follows:
OTHER AUTHORITY TO DISTRIBUTE IN FURTHER TRUST NOT LIMITED
This act shall not be construed to limit the power of an
authorized trustee to distribute property 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 section of law to be codified
in the Oklahoma Statutes as S ection 175.714 of Title 60, unless
there is created a duplication in numbering, reads as follows:
NEED FOR DISTRIBUTION 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 there is a current need 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 for an authorized
trustee to exercise a power to distribute principal, and impropriety
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 availability 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 duplication 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 te rms 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 of 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 in numbering, reads as follows:
EXCEPTIONS TO POWER OF DIST RIBUTION
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 distribution 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 amount from the trust;
2. Materially limit a trustee ’s fiduciary duty:
a. under the terms of the trust, or
b. in a manner that would be prohibited by the Oklahoma
Trust Act, Section 175.1 et seq. of Title 60 of the
Oklahoma Statutes, the Oklahoma Prudent Investor 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 against a trustee ’s liability or
exonerate a trustee from liabil ity;
4. Add a provision exonerating a trustee for failure to
exercise reasonable care, diligence, and prudence;
5. Eliminate a provision granting another person the right to
remove or replace the authorized trustee exercising the distribution
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 expressly permitted by
the terms of the first trust.
SECTION 18. NEW LAW A new section of l aw to be codified
in the Oklahoma Statutes as Section 175.718 of Title 60, unless
there is created a duplication in numbering, reads as follows:
TAX-RELATED LIMITATIONS
A. The authorized trustee shall not distribute the principal of
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 claimed 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 2056(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 Internal Revenue Code of 1986, as
amended;
4. Direct skip treatment under Section 2642(c) of the Internal
Revenue Code of 1986, as amended; or
5. Any other tax benefit for income, gift, estate, or
generation-skipping transfer tax purposes under the Internal Revenue
Code of 1986, as amended.
B. Notwithstanding subsection A of this section, an authorized
trustee may distribute the principal of a first trust to a second
trust regardless of whether the settlor is treated as the owner of
either or both trusts under 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 property that is subject to the minimum
distribution rules of the Internal Revenue Code, 26 U.S.C., Section
401(a)(9), as amended, is held 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 propert y.
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 as follows:
COMPENSATION OF TRUSTEE
A. Except as provided by subsection B of this 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 co mpensation of any trustee.
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 authori zed 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 determined in
the same manner as the compensation would hav e been determined in
the first trust.
D. An authorized trustee shall not receive a commission or
other compensation for the distribution of a particular asset from a
first trust to a second trust under Section 3 or 4 of this act.
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SECTION 20. This act shall become effective November 1, 2021.
COMMITTEE REPORT BY: COMMITTEE ON JUDICIARY - CIVIL, dated
03/30/2021 - DO PASS.