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S.B. 201

             1     

DISTRIBUTION LIMITATIONS ON TRUST

             2     
BENEFICIARY

             3     
1999 GENERAL SESSION

             4     
STATE OF UTAH

             5     
Sponsor: John L. Valentine

             6      AN ACT RELATING TO THE UNIFORM PROBATE CODE; PROTECTING A
             7      BENEFICIARY OF A TRUST FROM UNINTENDED TAXATION BECAUSE OF POWERS
             8      TO OBTAIN DISTRIBUTIONS FROM THE TRUST TO HIMSELF, EXCEPT UNDER
             9      CERTAIN CIRCUMSTANCES.
             10      This act affects sections of Utah Code Annotated 1953 as follows:
             11      ENACTS:
             12          75-7-410, Utah Code Annotated 1953
             13          75-7-411, Utah Code Annotated 1953
             14      Be it enacted by the Legislature of the state of Utah:
             15          Section 1. Section 75-7-410 is enacted to read:
             16          75-7-410. Limitations on powers of a trust beneficiary to make or obtain distributions
             17      to or for himself.
             18          (1) Unless the terms of a trust refer specifically to this section and provide expressly to the
             19      contrary, the powers conferred upon a person who is a beneficiary of a trust, whether in his
             20      capacity as a trustee or as an individual beneficiary, cannot be exercised by him to:
             21          (a) make or obtain discretionary distributions of either principal or income to or for the
             22      benefit of himself;
             23          (b) make discretionary allocations of receipts or expenses between principal and income,
             24      unless he acts in a fiduciary capacity where he has no power to enlarge or shift a beneficial interest
             25      except as an incidental consequence of the discharge of his fiduciary duties;
             26          (c) make or obtain discretionary distributions of either principal or income to satisfy his
             27      legal obligations; or


             28          (d) indirectly cause the powers enumerated in Subsections (1)(a), (b), or (c) to be exercised
             29      for his benefit by exercising any other power, including the right to remove or replace any trustee
             30      or make or obtain distributions to or for the benefit of a class of beneficiaries. A person who has
             31      the right to remove or to replace a trustee may not possess or be considered to possess, by virtue
             32      of having that right, the powers of the trustee who is subject to removal or replacement.
             33          (2) This section does not apply to:
             34          (a) a settlor of a revocable or amendable trust;
             35          (b) a decedent's or settlor's spouse as a beneficiary of a testamentary or inter vivos marital
             36      deduction trust;
             37          (c) distributions reasonably needed to provide for a beneficiary's health, education,
             38      support, or maintenance as described in Section 2041(b)(1)(A) or 2514(c)(1) of the Internal
             39      Revenue Code, or modifications of those sections, and regulations pertaining to those sections;
             40          (d) rights of withdrawal within the limits of Section 2041(b)(2) or 2514(e) of the Internal
             41      Revenue Code, or modifications of those sections, and regulations pertaining to those sections; or
             42          (e) powers clearly intended as general powers of appointment under Section 2041(b)(1)
             43      or 2514(c) of the Internal Revenue Code, or modifications of those sections, and regulations
             44      pertaining to those sections, whether or not specifically expressed in terms of powers exercisable
             45      in favor of the beneficiary, his estate, his creditors, or the creditors of this estate.
             46          (3) A proscribed power under this section that is conferred upon two or more persons may
             47      be exercised by the persons who are not disqualified under this section. If there is no person
             48      qualified to exercise a power proscribed by this section, the power may be exercised by a qualified
             49      person appointed under the appointment provisions of the trust instrument, or appointed by a court
             50      of competent jurisdiction as a special trustee.
             51          (4) This section applies to:
             52          (a) any trust created under an inter vivos document or will executed after June 30, 1999;
             53      and
             54          (b) any trust created under an inter vivos document or will executed before July 1, 1999,
             55      unless an election made under Section 75-7-411 provides that this section shall not apply.
             56          Section 2. Section 75-7-411 is enacted to read:
             57          75-7-411. Election to make Section 75-7-410 inapplicable to preexisting trusts.
             58          (1) The limitations on powers of a trust beneficiary to make or obtain distributions to or


             59      for himself contained in Section 75-7-410 shall apply to any trust created under an inter vivos
             60      document or will executed before July 1, 1999, unless:
             61          (a) if the trust is revocable or amendable, the settlor replaces or amends the trust at any
             62      time to provide otherwise; or
             63          (b) if the trust is irrevocable, or if the trust is revocable or amendable but the settlor is
             64      incapacitated, all parties in interest, as defined in Subsection (3) elect affirmatively, through a
             65      written instrument delivered to the trustee, not to be subject to the application of Section 75-7-410 .
             66      The election shall be made on or before the later of:
             67          (i) July 1, 2002;
             68          (ii) three years after the date on which the trust became irrevocable; or
             69          (iii) in the case of a revocable or amendable trust where the settlor is incapacitated, three
             70      years after the date on which the settlor became incapacitated.
             71          (2) The provisions of this section and Section 75-7-410 do not create a new cause of action
             72      or impair any existing cause of action which relate to any power proscribed by Section 75-7-410
             73      that was exercised before July 1, 1999.
             74          (3) For the purposes of Subsection (1):
             75          (a) If the trust is revocable or amendable, but the settlor is incapacitated, the party in
             76      interest is the settlor's legal representative or the settlor's donee under a durable power of attorney
             77      that is sufficient to grant the authority.
             78          (b) If the trust is not revocable or amendable, the parties in interest are each trustee then
             79      serving and each income beneficiary then in existence and each remainder beneficiary then in
             80      existence, or, if any income or remainder beneficiary has not attained majority or is incapacitated,
             81      the beneficiary's legal representative or the beneficiary's donee under a durable power of attorney
             82      that is sufficient to grant the authority, or a guardian ad litem appointed for that purpose.




Legislative Review Note
    as of 2-2-99 5:41 PM


A limited legal review of this legislation raises no obvious constitutional or statutory concerns.

Office of Legislative Research and General Counsel


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