HB 277: "An Act relating to trusts; relating to trust proceedings; relating to nonjudicial settlement agreements in trust matters; relating to the powers of trustees; and providing for an effective date."
00 HOUSE BILL NO. 277 01 "An Act relating to trusts; relating to trust proceedings; relating to nonjudicial 02 settlement agreements in trust matters; relating to the powers of trustees; and providing 03 for an effective date." 04 BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF ALASKA: 05 * Section 1. AS 13.36.035 is amended by adding a new subsection to read: 06 (j) The court shall protect the privacy of a settlor and the beneficiaries of a 07 noncharitable trust in a proceeding under this section. Upon the filing of a petition 08 under AS 13.36.060, court records relating to the proceeding shall be sealed and may 09 not be made available for public inspection. Court records relating to a proceeding 10 protected under this subsection are only available to the following persons: 11 (1) the settlor and the settlor's attorney; 12 (2) a trustee or other fiduciary, trust protector, trust advisor, or trustee 13 advisor, and their attorneys; 14 (3) a beneficiary or a beneficiary's representative and their attorneys;
01 (4) a party to the proceeding and the person's attorney; 02 (5) the judge or judges hearing or reviewing the matter; 03 (6) a member of the clerical or administrative staff of the court if 04 access is essential for authorized internal administrative purposes; and 05 (7) other interested persons upon a court order finding, on clear and 06 convincing evidence, that the disclosure is narrowly tailored to serve a compelling 07 public interest. 08 * Sec. 2. AS 13.36 amended by adding a new section to read: 09 Sec. 13.36.057. Nonjudicial settlement agreements. (a) Except as provided in 10 (b) of this section, indispensable parties may enter into a binding nonjudicial 11 settlement agreement with respect to any matter involving a trust that is within the 12 scope of proceedings described in AS 13.36.035(a). A nonjudicial settlement 13 agreement is effective when the agreement has been signed by all indispensable 14 parties. 15 (b) A nonjudicial settlement agreement is valid only to the extent it does not 16 violate a material purpose of the trust and includes terms and conditions that could be 17 properly approved by the court under this chapter or other applicable law. 18 (c) Matters that may be resolved by a nonjudicial settlement agreement 19 include 20 (1) the interpretation or construction of the terms of the trust; 21 (2) the investment or use of trust assets; 22 (3) the approval of a trustee's report or accounting; 23 (4) the direction to a trustee to perform or refrain from performing a 24 particular act; 25 (5) the grant to a trustee of any necessary or desirable power; 26 (6) the resignation or appointment of a trustee and the determination of 27 a trustee's compensation; 28 (7) the addition, deletion, or modification of a term or condition of the 29 trust; 30 (8) a merger or division of trusts; 31 (9) the transfer of a trust's principal place of administration;
01 (10) the liability of a trustee for an action relating to the trust; and 02 (11) the termination of the trust. 03 (d) An indispensable party may request the court to approve a nonjudicial 04 settlement agreement and to determine whether the agreement contains terms and 05 conditions the court could have properly approved. 06 (e) If an indispensable party does not sign a nonjudicial settlement agreement 07 or provide the trustee with a written objection, the trustee may give notice of proposed 08 action under AS 13.36.115 to all indispensable parties who have not signed the 09 settlement agreement, where the proposed action is to accept and comply with the 10 nonjudicial settlement agreement. 11 (f) In this section, "indispensable party" means an interested person, as 12 defined in AS 13.06.050, whose consent would be required to achieve a binding 13 settlement were the settlement to be approved by the court. 14 * Sec. 3. AS 13.36.079(j) is amended to read: 15 (j) Subject to AS 13.36.035(j), this [THIS] section does not limit the right of 16 a person to obtain a copy of the trust instrument in a judicial proceeding concerning 17 the trust. 18 * Sec. 4. AS 13.36 is amended by adding a new section to read: 19 Sec. 13.36.115. Notice of proposed action; fiduciary liability. (a) A fiduciary 20 may provide a notice of proposed action regarding a trust administration action under 21 the terms of the governing instrument of a trust or this chapter. 22 (b) If a fiduciary issues a notice of proposed action, the notice must be mailed 23 to every adult beneficiary who, at the time the notice is provided, receives, or is 24 entitled to receive, income under the trust or who would be entitled to receive a 25 distribution of principal if the trust were terminated. 26 (c) A notice of proposed action must state that the notice is provided pursuant 27 to this section and include 28 (1) the name and mailing address of the fiduciary; 29 (2) the name and telephone number of a person to contact for 30 additional information regarding the proposed action; 31 (3) a description of the proposed action, an explanation of the reason
01 for the proposed action, and an explanation of the fiduciary's authority to take the 02 proposed action; 03 (4) the time period within which any written objection to the proposed 04 action must be made, which may not be less than 30 days after the notice of proposed 05 action is mailed; 06 (5) a statement that failure to object within the stated time period bars 07 any claim against the fiduciary arising from the proposed action, except as provided in 08 (i) of this section; and 09 (6) the date the proposed action is intended to be taken or is intended 10 to be effective. 11 (d) A beneficiary may object to the proposed action by mailing a written 12 objection to the fiduciary at the address and within the time period stated in the notice. 13 (e) Except as provided in (i) of this section, if no beneficiary entitled to 14 receive notice of a proposed action objects to the proposed action and the other 15 requirements of this section are met, the fiduciary is not liable to present or future 16 beneficiaries for any action taken in accordance with the notice. 17 (f) If the fiduciary receives a timely written objection to the proposed action, 18 the fiduciary may not proceed to take the action unless the objection is withdrawn or 19 the fiduciary obtains court approval to take the action as proposed or with 20 modification. A beneficiary who fails to object to the proposed action is not estopped 21 from opposing the proposed action. A beneficiary who opposes the proposed action 22 has the burden in a subsequent judicial proceeding to prove that the proposed action 23 should not be taken or should be modified. If the fiduciary takes the proposed action 24 as approved by the court, the fiduciary is not liable to any beneficiary with respect to 25 that action. 26 (g) If the fiduciary decides not to take a proposed action for which notice has 27 been provided, the fiduciary shall notify the beneficiaries of the decision not to take 28 the proposed action and the reasons for the decision. The fiduciary is not liable to any 29 present or future beneficiary with respect to the decision not to take the proposed 30 action. A beneficiary may petition the court for an order to take the action as proposed. 31 The burden is on the beneficiary to prove that the proposed action should be taken.
01 (h) The terms of a governing instrument of a trust may expand, restrict, or 02 eliminate application of this section. 03 (i) This section does not relieve a fiduciary from liability related to breach of a 04 fiduciary duty, fraud, intentional misrepresentation, omission of a material fact in the 05 notice, or action taken in bad faith. 06 (j) In this section, "fiduciary" means 07 (1) a trustee; or 08 (2) a trust protector or trust adviser acting within the scope of authority 09 granted to the trust protector or trust adviser in the governing instrument. 10 * Sec. 5. AS 13.36.157(a) is amended to read: 11 (a) An authorized trustee with discretionary power to distribute all or part 12 of the trust principal to or for a current beneficiary, which power is not limited 13 by an ascertainable standard, [UNLIMITED DISCRETION TO INVADE TRUST 14 PRINCIPAL] may appoint part or all of that principal to a trustee of an appointed trust 15 for the benefit of a beneficiary of the invaded trust. [, AND ONLY FOR THE 16 BENEFIT OF, ONE OR MORE CURRENT BENEFICIARIES OF THE INVADED 17 TRUST TO THE EXCLUSION OF OTHER CURRENT BENEFICIARIES. A 18 PERMISSIBLE APPOINTEE OF A POWER OF APPOINTMENT HELD BY A 19 BENEFICIARY OF THE APPOINTED TRUST IS NOT CONSIDERED A 20 BENEFICIARY OF THE APPOINTED TRUST, REGARDLESS OF WHETHER 21 THE PERMISSIBLE APPOINTEE IS A CURRENT BENEFICIARY OR A 22 SUCCESSOR AND REMAINDER BENEFICIARY.] 23 * Sec. 6. AS 13.36.157(b) is amended to read: 24 (b) An authorized trustee exercising the power under (a) of this section may 25 grant a discretionary power of appointment, including a presently exercisable power of 26 appointment, in the appointed trust to one or more of the current beneficiaries of the 27 invaded trust, if [TO THE EXTENT THAT] the beneficiary who is granted the power 28 to appoint is authorized to receive the principal outright under the terms of the invaded 29 trust. A permissible appointee is not limited to the beneficiaries of the invaded trust 30 and may include 31 (1) a person that is not a beneficiary of the invaded trust;
01 (2) a holder of a power of appointment; or 02 (3) the estate or a creditor of a holder of a power of appointment. 03 * Sec. 7. AS 13.36.157(c) is amended to read: 04 (c) Under (a) and (b) of this section, if the beneficiaries of the invaded trust 05 are described by a class, the beneficiaries of the appointed trust may include present or 06 future members of that class, except that a person may not become a beneficiary 07 sooner than as provided in or authorized by the invaded trust. 08 * Sec. 8. AS 13.36.157(d) is amended to read: 09 (d) An authorized trustee with discretionary power to distribute all or part 10 of the trust principal to or for a current beneficiary, which power is limited by an 11 ascertainable standard, including a beneficiary trustee, [THE POWER TO 12 INVADE TRUST PRINCIPAL BUT WITHOUT UNLIMITED DISCRETION] may 13 appoint part or all of the principal of the trust to a trustee of an appointed trust if the 14 current beneficiaries of the appointed trust are the same as the current beneficiaries of 15 the invaded trust and the successor and remainder beneficiaries of the appointed trust 16 are the same as the successor and remainder beneficiaries of the invaded trust. The 17 shares of the current beneficiaries of the appointed trust must be the same as the shares 18 of the current beneficiaries of the invaded trust, and the shares of the successor and 19 remainder beneficiaries of the appointed trust must be the same as the shares of the 20 successor and remainder beneficiaries of the invaded trust. 21 * Sec. 9. AS 13.36.157(e) is amended to read: 22 (e) If the authorized trustee exercises the power under (d) of this section, the 23 appointed trust must include the same ascertainable standard authorizing the trustee 24 to distribute the income or invade the principal of the appointed trust as the standard in 25 the invaded trust. However, the standard authorizing the trustee to distribute the 26 income or invade the principal of the appointed trust may be changed by an 27 authorized trustee if the trustee appoints to an appointed trust that is a special needs 28 trust, a pooled trust, or a third-party trust. 29 * Sec. 10. AS 13.36.157(g) is amended to read: 30 (g) Under (d) and (e) [(d) - (f)] of this section, if the beneficiaries of the 31 invaded trust are described by a class, the beneficiaries of the appointed trust include
01 present or future members of that class. 02 * Sec. 11. AS 13.36.157(h) is amended to read: 03 (h) If the authorized trustee exercises the power under (d) or (e) [(d) - (g)] of 04 this section and if the invaded trust grants a power of appointment to a beneficiary of 05 the trust, the appointed trust must grant the same [THIS] power of appointment [IN 06 THE APPOINTED TRUST, AND THE CLASS OF PERMISSIBLE APPOINTEES 07 SHALL BE THE SAME] as in the invaded trust. 08 * Sec. 12. AS 13.36.157 is amended by adding a new subsection to read: 09 (i) An authorized trustee exercising the power under (a) of this section may 10 (1) establish an ascertainable standard for the distribution of income or 11 invasion of principal in the appointed trust that is a different standard from the 12 standard in the invaded trust; 13 (2) appoint the principal of the invaded trust to an appointed trust that 14 is a special needs trust, pooled trust, or third-party trust; and 15 (3) subject to the restrictions in AS 13.36.158(i)(1), reduce a 16 beneficiary's right to a mandatory distribution of income or principal. 17 * Sec. 13. AS 13.36.158(c) is repealed and reenacted to read: 18 (c) If more than one authorized trustee has discretionary power to distribute all 19 or part of the trust principal, an authorized trustee with discretionary power that is not 20 limited by an ascertainable standard may exercise the power under AS 13.36.157(a) - 21 (c) and (i). 22 * Sec. 14. AS 13.36.158(e) is amended to read: 23 (e) An authorized trustee exercising the power under AS 13.36.157 - 24 13.36.159 has a fiduciary duty to exercise the power in the best interests of one or 25 more proper objects of the exercise of the power and as a prudent person would 26 exercise the power under the prevailing circumstances. [THE AUTHORIZED 27 TRUSTEE MAY NOT EXERCISE THE POWER UNDER AS 13.36.157 - 13.36.159 28 IF THERE IS SUBSTANTIAL EVIDENCE OF A CONTRARY INTENT OF THE 29 SETTLOR AND IT CANNOT BE ESTABLISHED THAT THE SETTLOR WOULD 30 BE LIKELY TO HAVE CHANGED THIS INTENTION UNDER THE 31 CIRCUMSTANCES EXISTING AT THE TIME THE TRUSTEE EXERCISES THE
01 POWER. THE PROVISIONS OF THE INVADED TRUST MAY NOT BE VIEWED 02 ALONE AS SUBSTANTIAL EVIDENCE OF A CONTRARY INTENT OF THE 03 SETTLOR UNLESS THE INVADED TRUST EXPRESSLY PROHIBITS THE 04 EXERCISE OF THE POWER IN THE MANNER INTENDED BY THE 05 AUTHORIZED TRUSTEE.] 06 * Sec. 15. AS 13.36.158(i) is amended to read: 07 (i) An authorized trustee may not exercise a power authorized by 08 AS 13.36.157 to 09 (1) reduce, limit, or modify a beneficiary's current right to a mandatory 10 distribution of income, [OR PRINCIPAL, A MANDATORY] annuity, or unitrust 11 interest for which a marital deduction has been taken for federal tax purposes 12 under 26 U.S.C. 2056 or 26 U.S.C. 2523 (Internal Revenue Code) or for state tax 13 purposes under a comparable provision of state law [, A RIGHT TO WITHDRAW 14 A PERCENTAGE OF THE VALUE OF THE TRUST, OR A RIGHT TO 15 WITHDRAW A SPECIFIED DOLLAR AMOUNT, IF THE MANDATORY RIGHT 16 HAS COME INTO EFFECT WITH RESPECT TO THE BENEFICIARY, BUT THE 17 MANDATORY RIGHT MAY BE REDUCED, LIMITED, OR MODIFIED DURING 18 ANY EXTENDED DURATION OF THE TRUST; HOWEVER, 19 NOTWITHSTANDING THE OTHER PROVISIONS IN THIS PARAGRAPH, BUT 20 SUBJECT TO THE OTHER LIMITATIONS IN AS 13.36.157 - 13.36.159, AN 21 AUTHORIZED TRUSTEE MAY EXERCISE A POWER AUTHORIZED BY 22 AS 13.36.157 TO APPOINT TO AN APPOINTED TRUST THAT IS A SPECIAL 23 NEEDS TRUST, A POOLED TRUST, OR A THIRD-PARTY TRUST]; 24 (2) decrease or indemnify against a trustee's liability or exonerate a 25 trustee from liability for failure to exercise reasonable care, diligence, and prudence 26 unless the court having jurisdiction over the trust specifies otherwise; 27 (3) eliminate a provision granting another person the right to remove 28 or replace the authorized trustee exercising the power under AS 13.36.157 unless a 29 court having jurisdiction over the trust specifies otherwise; 30 (4) fix as binding and conclusive the value of an asset for purposes of 31 distribution, allocation, or otherwise; or
01 (5) jeopardize 02 (A) the deduction or exclusion originally claimed with respect 03 to a contribution to the invaded trust that qualified for the annual exclusion 04 under 26 U.S.C. 2503(b), the marital deduction under 26 U.S.C. 2056(a) or 26 05 U.S.C. 2523(a), or the charitable deduction under 26 U.S.C. 170(a), 26 U.S.C. 06 642(c), 26 U.S.C. 2055(a), or 26 U.S.C. 2522(a) (Internal Revenue Code); 07 (B) the qualification of a transfer as a direct skip under 26 08 U.S.C. 2642(c) (Internal Revenue Code); 09 (C) the election to treat a corporation as a subchapter S 10 corporation under 26 U.S.C. 1362 (Internal Revenue Code); or 11 (D) another specific tax benefit for which a contribution 12 originally qualified for income, gift, estate, or generation-skipping transfer tax 13 purposes under 26 U.S.C. (Internal Revenue Code). 14 * Sec. 16. AS 13.36.159(c) is amended to read: 15 (c) An authorized trustee may exercise the power authorized by AS 13.36.157 16 without the consent of the settlor or a person interested in the invaded trust and 17 without court approval. However, an authorized trustee may seek court approval for 18 the exercise. When seeking court approval, notice shall be sent to all qualified 19 beneficiaries or to a person who may represent and bind a qualified beneficiary 20 under AS 13.06.120. 21 * Sec. 17. AS 13.36.159(d) is amended to read: 22 (d) A copy of the invaded trust, the executed appointed trust, and the 23 executed instrument exercising the power shall be delivered to 24 (1) the settlor, if living, of the invaded trust; 25 (2) a person having the right, under the terms of the invaded trust, to 26 remove or replace the authorized trustee exercising the power under AS 13.36.157; 27 and 28 (3) a qualified beneficiary or a person who may represent and bind a 29 qualified beneficiary under AS 13.06.120. 30 * Sec. 18. AS 13.36.215(b)(1) is amended to read: 31 (1) "appointed trust" means an irrevocable trust that receives principal
01 from an invaded trust under AS 13.36.157, including a new trust created by the settlor 02 of the invaded trust, by another person, or by an authorized trustee [THE 03 TRUSTEES,] acting in that capacity, of the invaded trust or a restatement or 04 modification of the invaded trust; 05 * Sec. 19. AS 13.36.215(b)(2) is amended to read: 06 (2) "authorized trustee" means [, WITH REGARD TO AN INVADED 07 TRUST,] a trustee or fiduciary, other than the settlor, with the power to distribute 08 all or part of the [AUTHORITY TO PAY] trust principal to or for a current 09 beneficiary; [IN THIS PARAGRAPH, "TRUSTEE" DOES NOT INCLUDE A 10 SETTLOR OR A BENEFICIARY TO WHOM INCOME OR PRINCIPAL MUST BE 11 PAID, CURRENTLY OR IN THE FUTURE, OR WHO IS OR WILL BECOME 12 ELIGIBLE TO RECEIVE A DISTRIBUTION OF INCOME OR PRINCIPAL IN 13 THE DISCRETION OF THE TRUSTEE OTHER THAN BY THE EXERCISE OF A 14 POWER OF APPOINTMENT HELD IN A NONFIDUCIARY CAPACITY]; 15 * Sec. 20. AS 13.36.215(b) is amended by adding new paragraphs to read: 16 (11) "ascertainable standard" means a standard in a trust or other 17 governing instrument relating to a person's health, education, maintenance, or support 18 within the meaning of 26 U.S.C. 2041(b)(1)(A) or 26 U.S.C. 2514(c)(1) (Internal 19 Revenue Code), as amended, and applicable regulations; 20 (12) "beneficiary" means a person who is, or in the future may be, 21 eligible to receive income or principal under the terms of a trust, even if the person has 22 a remote contingent remainder interest, unless the 23 (A) only interest of the person in the trust is the interest of a 24 potential appointee under a nonfiduciary power of appointment held by another 25 person; and 26 (B) power of appointment identified under (A) of this 27 paragraph has not been exercised or will only be exercised in the future. 28 * Sec. 21. AS 13.36.370(b) is amended to read: 29 (b) A trust protector appointed under (a) of this section has the powers, 30 delegations, and functions conferred on the protector by the trust instrument, which 31 may include the power to
01 (1) remove and appoint a trustee; 02 (2) modify or amend the trust instrument to achieve favorable tax 03 status or to respond to changes in 26 U.S.C. (Internal Revenue Code) or state law, or 04 the rulings and regulations under those laws; 05 (3) increase or decrease the interests of any beneficiary to the trust; 06 [AND] 07 (4) modify the terms of a power of appointment granted by the trust; 08 and 09 (5) issue a notice of proposed action under AS 13.36.115. 10 * Sec. 22. AS 34.40.110(d) is amended to read: 11 (d) A cause of action or claim for relief with respect to a fraudulent transfer of 12 a settlor's assets under (b)(1) of this section is extinguished unless the action under 13 (b)(1) of this section is brought by a creditor of the settlor who 14 (1) is a creditor of the settlor before the settlor's assets are transferred 15 to the trust, and the action under (b)(1) of this section is brought within the later of 16 (A) one year [FOUR YEARS] after the transfer is made; or 17 (B) six months [ONE YEAR] after the transfer is or reasonably 18 could have been discovered by the creditor if the creditor 19 (i) can demonstrate, by a preponderance of the 20 evidence, that the creditor asserted a specific claim against the settlor 21 before the transfer; or 22 (ii) files another action, other than an action under 23 (b)(1) of this section, against the settlor that asserts a claim based on an 24 act or omission of the settlor that occurred before the transfer, and the 25 action described in this sub-subparagraph is filed within one year 26 [FOUR YEARS] after the transfer; or 27 (2) becomes a creditor subsequent to the transfer into trust, and the 28 action under (b)(1) of this section is brought within one year [FOUR YEARS] after 29 the transfer is made. 30 * Sec. 23. AS 34.40.110(i) is amended to read: 31 (j) A settlor who creates a trust that names the settlor as a beneficiary and
01 whose beneficial interest is subject to a transfer restriction allowed under (a) of this 02 section shall, at the time of initial funding of the trust, sign a sworn affidavit before 03 the settlor transfers assets to the trust. After initial funding, the settlor may 04 periodically renew the affidavit to include additional transfers of assets to the 05 trust. The settlor is presumed to be solvent with respect to any transfers of assets 06 to the trust that occur after initial funding. The affidavit must state that 07 (1) the settlor has full right, title, and authority to transfer the assets to 08 the trust; 09 (2) the transfer of the assets to the trust will not render the settlor 10 insolvent; 11 (3) the settlor does not intend to defraud a creditor by transferring the 12 assets to the trust; 13 (4) the settlor does not have any pending or threatened court actions 14 against the settlor, except for those court actions identified by the settlor on an 15 attachment to the affidavit; 16 (5) the settlor is not involved in any administrative proceedings, except 17 for those administrative proceedings identified on an attachment to the affidavit; 18 (6) at the time of the transfer of the assets to the trust, the settlor is not 19 currently in default of a child support obligation by more than 30 days; 20 (7) the settlor does not contemplate filing for relief under the 21 provisions of 11 U.S.C. (Bankruptcy Code); and 22 (8) the assets being transferred to the trust were not derived from 23 unlawful activities. 24 * Sec. 24. AS 13.36.157(f), 13.36.159(i), and 13.36.215(b)(10) are repealed. 25 * Sec. 25. The uncodified law of the State of Alaska is amended by adding a new section to 26 read: 27 APPLICABILITY. AS 13.36.157, as amended by secs. 5 - 12 of this Act, 28 AS 13.36.158, as amended by secs. 13 - 15 of this Act, AS 13.36.159, as amended by secs. 16 29 and 17 of this Act, and AS 13.36.215, as amended by secs. 18 - 20 of this Act, apply to a trust 30 that is created on or after the effective date of this Act. 31 * Sec. 26. This Act takes effect immediately under AS 01.10.070(c).