2013 -- S 0286

=======

LC01071

=======

STATE OF RHODE ISLAND

IN GENERAL ASSEMBLY

JANUARY SESSION, A.D. 2013

____________

A N A C T

RELATING TO FIDUCIARIES

     Introduced By: Senators Jabour, Lombardi, Ottiano, and McCaffrey

     Date Introduced: February 12, 2013

     Referred To: Senate Judiciary

It is enacted by the General Assembly as follows:

1-1

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

1-2

Fiduciaries" is hereby amended to read as follows:

1-3

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

1-4

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

1-5

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

1-6

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

1-7

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

1-8

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

1-9

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

1-10

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

1-11

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

1-12

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

1-13

trust;

1-14

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

1-15

the assets of the first trust; and

1-16

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

1-17

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

1-18

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

1-19

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

1-20

deduction or would have reduced the amount of such deduction.

2-1

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

2-2

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

2-3

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

2-4

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

2-5

an absolute power not limited to specific or ascertainable purposes.

2-6

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

2-7

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

2-8

the first trust.

2-9

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

2-10

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

2-11

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

2-12

      (d) The trustee shall notify all qualified beneficiaries Qualified Beneficiaries (as

2-13

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

2-14

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

2-15

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

2-16

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

2-17

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

2-18

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

2-19

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

2-20

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

2-21

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

2-22

applicable provisions of this title.

2-23

      (e) "Qualified Beneficiary" means a living beneficiary who, on the date the beneficiary's

2-24

qualifications is determined:

2-25

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

2-26

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

2-27

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

2-28

trust to terminate; or

2-29

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

2-30

trust terminated in accordance with its terms on that date.

2-31

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

2-32

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

2-33

amendment or revocation of the trust.

3-34

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

3-35

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

3-36

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

3-37

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

3-38

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

3-39

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

3-40

common law.

3-41

     SECTION 2. This act shall take effect upon passage and shall apply to all trusts,

3-42

whenever created.

=======

LC01071

=======

EXPLANATION

BY THE LEGISLATIVE COUNCIL

OF

A N A C T

RELATING TO FIDUCIARIES

***

4-1

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

4-2

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

4-3

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

4-4

principal of the trust.

4-5

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

=======

LC01071

=======