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First Substitute S.B. 117

Representative James A. Ferrin proposes the following substitute bill:


             1     
TRUST AMENDMENTS

             2     
2002 GENERAL SESSION

             3     
STATE OF UTAH

             4     
Sponsor: John L. Valentine

             5      This act modifies the Utah Uniform Probate Code to address issues related to trusts and to
             6      make technical changes. This act addresses certain circumstances when a trustee may take
             7      action based on investment direction or with the consent or approval of another person, and
             8      the duties and liability of a person that gives investment directions or whose consent or
             9      approval is required for investment actions. This act provides revisors instructions.
             10      This act affects sections of Utah Code Annotated 1953 as follows:
             11      AMENDS:
             12          75-7-302, as repealed and reenacted by Chapter 119, Laws of Utah 1995
             13          75-7-403, as last amended by Chapter 119, Laws of Utah 1995
             14      Be it enacted by the Legislature of the state of Utah:
             15          Section 1. Section 75-7-302 is amended to read:
             16           75-7-302. Trustee's standard of care and performance.
             17          (1) For purposes of this section, "investment direction" means a direction:
             18          (a) that is binding on the trustee, except for an investment direction given by a settlor as
             19      described in Subsection (13);
             20          (b) to do any of the following with respect to an investment:
             21          (i) retention;
             22          (ii) purchase;
             23          (iii) sale;
             24          (iv) exchange;
             25          (v) tender; or


             26          (vi) any other transaction affecting ownership in the investment.
             27          [(1)] (2) (a) Except as otherwise provided in Subsection [(2)] (3), a trustee who invests and
             28      manages trust assets owes a duty to the beneficiaries of the trust to comply with the prudent
             29      investor rule as set forth in this section.
             30          (b) If a trustee is named on the basis of a trustee's representations of special skills or
             31      expertise, the trustee has a duty to use those special skills or expertise.
             32          [(2)] (3) (a) The prudent investor rule, a default rule, may be expanded, restricted,
             33      eliminated, or otherwise altered by the provisions of a trust.
             34          (b) A trustee is not liable to a beneficiary to the extent that the trustee acted in reasonable
             35      reliance on the provisions of the trust.
             36          [(3)] (4) (a) A trustee shall invest and manage trust assets as a prudent investor would, by
             37      considering the purposes, terms, distribution requirements, and other circumstances of the trust.
             38          (b) In satisfying [this] the standard stated in Subsection (4)(a), the trustee shall exercise
             39      reasonable care, skill, and caution.
             40          [(4)] (5) (a) A trustee's investment and management decisions respecting individual assets
             41      [must] shall be evaluated not in isolation but in the context of the trust portfolio as a whole and
             42      as a part of an overall investment strategy having risk and return objectives reasonably suited to
             43      the trust.
             44          (b) Among circumstances that the trustee shall consider in investing and managing trust
             45      assets are [such] any of the following [as] that are relevant to the trust or [its] the trust's
             46      beneficiaries:
             47          [(a) ] (i) general economic conditions;
             48          [(b)] (ii) the possible effect of inflation or deflation;
             49          [(c)] (iii) the expected tax consequences of investment decisions or strategies;
             50          [(d)] (iv) the role that each investment or course of action plays within the overall trust
             51      portfolio, which may include:
             52          (A) financial assets[,];
             53          (B) interests in closely held enterprises[,];
             54          (C) tangible and intangible personal property[,]; and
             55          (D) real property;
             56          [(e)] (v) the expected total return from income and the appreciation of capital;


             57          [(f)] (vi) other resources of the beneficiaries;
             58          [(g) ] (vii) needs for liquidity, regularity of income, and preservation or appreciation of
             59      capital;
             60          [(h)] (viii) the duty to incur only reasonable and appropriate investment costs; and
             61          [(i)] (ix) an asset's special relationship or special value, if any, to the purposes of the trust
             62      or to one or more of the beneficiaries.
             63          [(5)] (6) A trustee shall make a reasonable effort to verify facts relevant to the investment
             64      and management of trust assets.
             65          [(6)] (7) A trustee may invest in any kind of property or type of investment consistent with
             66      the standards of this section.
             67          [(7)] (8) A trustee shall diversify the investments of the trust unless, the trustee reasonably
             68      determines that, because of special circumstances, the purposes of the trust are better served
             69      without diversifying.
             70          [(8)] (9) (a) A trustee shall invest and manage the trust assets solely in the interest of the
             71      beneficiaries.
             72          (b) If a trust has two or more beneficiaries, the trustee shall act impartially in investing and
             73      managing the trust assets, taking into account any differing interests of the two or more
             74      beneficiaries.
             75          [(9)] (10) (a) This section does not require a specific outcome in investing[, and
             76      compliance].
             77          (b) Compliance with the prudent investor rule is determined in light of the facts and
             78      circumstances existing at the time of a trustee's decision or action and not by hindsight.
             79          [(10)] (11) Within a reasonable time after accepting a trusteeship or receiving trust assets,
             80      a trustee shall review the trust assets and make and implement decisions concerning the retention
             81      and disposition of assets, in order to bring the trust portfolio into compliance with the:
             82          (a) purposes, terms, distribution requirements, and other circumstances of the trust[,]; and
             83      [with the]
             84          (b) requirements of this section.
             85          [(11)] (12) (a) A trustee may delegate investment and management functions that a prudent
             86      trustee of comparable skills could properly delegate under the circumstances. The trustee shall
             87      exercise reasonable care, skill, and caution in:


             88          (i) selecting the agent;
             89          (ii) establishing the scope and terms of the delegation consistent with the purposes of the
             90      trust; and
             91          (iii) periodically reviewing the agent's actions to monitor the agent's performance and
             92      compliance with the terms of the delegation.
             93          (b) In performing a delegated function, an agent has a duty to the trust to exercise
             94      reasonable care to comply with the terms of the delegation.
             95          (c) A trustee who complies with the requirements of Subsection [(11)] (12)(a) is not liable
             96      to the beneficiaries or to the trust for the decisions or actions of the agent to whom the function
             97      was delegated.
             98          (13) (a) During the time period that a trust is revocable, the trustee may follow any
             99      investment direction of the settlor, including an investment direction that:
             100          (i) is manifestly contrary to the terms of the trust; or
             101          (ii) seriously breaches a fiduciary duty to the beneficiaries.
             102          (b) The trustee is not liable for any loss resulting from following an investment direction
             103      described in Subsection (13)(a).
             104          (14) If the terms of a trust authorize a person to give investment direction to the trustee,
             105      the person authorized to give investment direction:
             106          (a) is presumptively a fiduciary only with respect to an investment direction that the person
             107      gives to the trustee;
             108          (b) is required to act in good faith with regard to:
             109          (i) the purposes of the trust; and
             110          (ii) the interests of the beneficiaries; and
             111          (c) is liable for any loss that results from breach of the fiduciary duty only with respect to
             112      an investment direction that the person gives to the trustee.
             113          (15) Except in cases of willful misconduct or gross negligence, a trustee is not liable for
             114      any loss that results from following an investment direction if:
             115          (a) the terms of a trust authorizes a person to give the investment direction to the trustee;
             116      and
             117          (b) the trustee acts in accordance with the investment direction given by a person described
             118      in Subsection (15)(a).


             119          (16) If the terms of a trust require another person's approval or consent to an investment
             120      decision of the trustee:
             121          (a) the person from whom approval or consent is required:
             122          (i) is presumptively a fiduciary;
             123          (ii) is required to act in good faith with regard to:
             124          (A) the purposes of the trust; and
             125          (B) the interests of the beneficiaries; and
             126          (iii) is liable for any loss that results from breach of the fiduciary duty; and
             127          (b) except in cases of willful misconduct or gross negligence, the trustee is not liable for
             128      any loss resulting from any act not taken as a result of the person's failure to respond to a request
             129      for approval or consent.
             130          [(12)] (17) The following terms or comparable language in the provisions of a trust, unless
             131      otherwise limited or modified, authorizes any investment or strategy permitted under this section:
             132          (a) "investments permissible by law for investment of trust funds[,]";
             133          (b) "legal investments[,]";
             134          (c) "authorized investments[,]";
             135          (d) "using the judgment and care under the circumstances then prevailing that persons of
             136      prudence, discretion, and intelligence exercise in the management of their own affairs, not in
             137      regard to the speculation but in regard to the permanent disposition of their funds, considering the
             138      probable income as well as the probable safety of their capital[,]";
             139          (e) "prudent man rule[,]";
             140          (f) "prudent trustee rule[,]";
             141          (g) "prudent person rule[,]"; and
             142          (h) "prudent investor rule."
             143          [(13) This] (18) (a) (i) Except as provided in Subsection (18)(b), this section applies to
             144      trusts existing on and created after July 1, 1995.
             145          (ii) As applied to trusts existing on July 1, 1995, this section governs only decisions or
             146      actions occurring after July 1, 1995.
             147          (b) (i) The amendments to this section in this act apply to a trust:
             148          (A) existing on May 6, 2002; or
             149          (B) created on or after May 6, 2002.


             150          (ii) As applied to a trust existing on May 6, 2002, the amendments to this section in this
             151      act only govern a decision or action occurring after May 6, 2002.
             152          Section 2. Section 75-7-403 is amended to read:
             153           75-7-403. Trustee's office not transferable -- Transactions excepted.
             154          (1) The trustee shall not transfer his office to another or delegate the entire administration
             155      of the trust to a co-trustee or another.
             156          (2) Subsection (1) does not apply to any transaction permitted under Section 7-5-14 or
             157      Subsection 75-7-302[ (11)] (12).
             158          Section 3. Revisors instructions.
             159          It is the intent of the Legislature that, in preparing the Utah Code Database for publication,
             160      the Office of Legislative Research and General Counsel shall replace the reference in Subsection
             161      75-7-302(18)(b) from "this act" to the act's designated chapter number in the Laws of Utah.


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