2012 -- S 2497

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LC00985

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2012

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A N A C T

RELATING TO FIDUCIARIES -- POWERS OF FIDUCIARIES

     Introduced By: Senator Michael J. McCaffrey

     Date Introduced: February 16, 2012

     Referred To: Senate Judiciary

It is enacted by the General Assembly as follows:

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     SECTION 1. Chapter 18-4 of the General Laws entitled "Powers of Fiduciaries" is

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hereby amended by adding thereto the following section:

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     18-4-31. Power to invade principal in trust. – (a)(1) Unless the trust instrument

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expressly provides otherwise or unless the trust is a “Special Needs Trust” or “Supplemental

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Needs Trust” created in accordance with 42 United States Code section 1396p(d)(4)(A), a trustee

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who has absolute power under the terms of a trust to invade the principal of the trust, referred to

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in this section as the “first trust,” to make distributions to or for the benefit of one or more

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persons, may instead exercise the power by appointing all or part of the principal of the trust

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subject to the power in favor of a trustee of another trust, referred to in this section as the “second

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trust,” for the current benefit of one or more of such persons under the same trust instrument or

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under a different trust instrument, provided:

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     (i) The beneficiaries of the second trust may include only beneficiaries of the first trust;

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     (ii) The second trust may not reduce any fixed income, annuity or unitrust interest in the

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assets of the first trust; and

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     (iii) If any contribution to the first trust qualified for a marital or charitable deduction for

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federal income, gift or estate tax purposes under the Internal Revenue Code of 1986, as amended

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26 U.S.C. section 1, et seq., the second trust shall not contain any provisions which, if included in

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the first trust, would have prevented the first trust from qualifying for such a deduction or would

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have reduced the amount of such deduction.

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     (2) For purposes of this subsection, an absolute power to invade principal shall include a

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power to invade principal that is not limited to specific or ascertainable purpose, such as health,

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education, maintenance, and support whether or not the term “absolute” is used. A power to

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invade principal for purposes such as best interests, welfare, comfort, or happiness shall constitute

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an absolute power not limited to specific or ascertainable purposes.

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     (b) The exercise of a power to invade principal under subsection (a)(1) or (a)(2) shall be

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by an instrument in writing, signed and acknowledged by the trustee, and filed with the records of

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the first trust.

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     (c) The exercise of a power to invade principal under subsection (a)(1) or (a)(2) shall be

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considered the exercise of a power of appointment, other than a power to appoint to the trustee,

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the trustee’s creditors, the trustee’s estate, or the creditors of the trustee’s estate.

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     (d) The trustee shall notify all qualified beneficiaries (as hereinafter defined) of the first

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trust, in writing, at least sixty (60) days prior to the effective date of the trustee’s exercise of the

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trustee’s power to invade principal pursuant to subsection (a)(1) or (a)(2) of the manner in which

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the trustee intends to exercise the power. A copy of the proposed instrument exercising the

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power shall satisfy the trustee’s notice obligation under this subsection. If all qualified

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beneficiaries waive the notice period by signed written instrument delivered to the trustee, the

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trustee’s power to invade principal shall be exercisable immediately. The trustee’s notice under

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this subsection shall not limit the right of any beneficiary to object to the exercise of the trustee’s

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power to invade principal except as provided in other applicable provisions of this title.

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     (e) “Qualified Beneficiary” means a living beneficiary who, on the date the beneficiary’s

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qualifications is determined:

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     (1) Is a distributee or permissible distribute of trust income or principal;

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     (2) Would be a distribute or permissible distribute of trust income or principal if the

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interests of the distributes described in subsection (a) terminated on that date without causing the

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trust to terminate; or

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     (3) Would be a distributee or permissible distribute of trust income or principal if the

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trust terminated in accordance with its terms on that date.

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     (f) The exercise of the power to invade principal under subsection (a)(1) or (a)(2) is not

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prohibited by a spendthrift clause or by a provision in the trust instrument that prohibits

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amendment or revocation of the trust.

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     (g) Nothing in this section is intended to create or imply a duty to exercise a power to

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invade principal, and no inference of impropriety shall be made as a result of a trustee not

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exercising the power to invade principal conferred under subsection (a)(1) or (a)(2).

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     (h) The provisions of this section shall not be construed to abridge the right of any trustee

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who has a power of invasion to appoint property in further trust that arises under the terms of the

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first trust or under any other section of this title or under another provisions of law or under

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common law.

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     SECTION 2. This act shall take effect upon passage.

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LC00985

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO FIDUCIARIES -- POWERS OF FIDUCIARIES

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     This act would permit a trustee who has absolute power to invade principal of a trust to

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make distributions to a second trust for the benefit of the same beneficiaries.

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     This act would take effect upon passage.

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LC00985

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