2013 -- H 5501

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LC01084

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STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2013

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A N A C T

RELATING TO FIDUCIARIES

     Introduced By: Representatives Marcello, and Morgan

     Date Introduced: February 14, 2013

     Referred To: House Judiciary

It is enacted by the General Assembly as follows:

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     SECTION 1. Section 18-4-31 of the General Laws in Chapter 18-4 entitled "Powers of

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Fiduciaries" is hereby amended to read as follows:

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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 authority under the terms of a trust to invade the principal of the trust,

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referred to in this section as the "first trust," to make distributions to or for the benefit of one or

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more persons, may instead exercise the power such authority by appointing all or part of the

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principal of the trust subject to the power in favor of a trustee of another trust, referred to in this

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section as the "second trust," for the current benefit of one or more of such persons under the

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same trust instrument or under a different trust instrument, provided:

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      (i)(1) The beneficiaries of the second trust may include only beneficiaries of the first

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trust;

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      (ii)(2) The second trust may not reduce any fixed income, annuity or unitrust interest in

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the assets of the first trust; and

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      (iii)(3) If any contribution to the first trust qualified for a marital or charitable deduction

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

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

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included in the first trust, would have prevented the first trust from qualifying for such a

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deduction or would 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 Qualified Beneficiaries (as

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hereinafter defined) of the first trust, in writing, of the manner in which the trustee intends to

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exercise the power, such notice to be at least sixty (60) days prior to the effective date of the

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trustee's exercise of the trustee's power to invade principal pursuant to subsection (a)(1) or (a)(2)

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of the manner in which the trustee intends to exercise the power. A copy of the proposed

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instrument exercising the power shall satisfy the trustee's notice obligation under this subsection.

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If all qualified beneficiaries Qualified Beneficiaries waive the notice period by signed written

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instrument delivered to the trustee, the trustee's power to invade principal shall be exercisable

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immediately. The trustee's notice under this subsection shall not limit the right of any beneficiary

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to object to the exercise of the trustee's power to invade principal except as provided in other

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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

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

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of the 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 and shall apply to all trusts,

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whenever created.

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LC01084

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EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO FIDUCIARIES

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     This act would clarify the organization and numbering of the provisions of the general

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laws pertaining to fiduciaries and would permit a trustee to invade principal of a trust to make

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distributions to a second trust with similar provisions where the trustee has authority to invade

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principal of the trust.

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     This act would take effect upon passage and would apply to all trusts, whenever created.

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LC01084

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