January 15, 2010





SENATE BILL No. 67

_____


DIGEST OF SB 67 (Updated January 13, 2010 12:55 pm - DI 106)



Citations Affected: IC 30-4.

Synopsis: Trust matters. Prescribes trust interpretation rules to protect discretionary interests held by beneficiaries. Precludes creditor actions against certain trust interests. Authorizes matrimonial trusts. Authorizes a trustee to decant a trust. Authorizes a trustee to close a trust when a beneficiary cannot be found by selling the beneficiary's share and depositing the proceeds with the clerk of the court. Requires the clerk to hold the proceeds for the use and benefit of the person or persons thereafter determined by law to be entitled to the proceeds. (The introduced version of this bill was prepared by the probate code study commission.)

Effective: July 1, 2010.





Zakas




    January 5, 2010, read first time and referred to Committee on Judiciary.
    January 14, 2010, reported favorably _ Do Pass.






January 15, 2010

Second Regular Session 116th General Assembly (2010)


PRINTING CODE. Amendments: Whenever an existing statute (or a section of the Indiana Constitution) is being amended, the text of the existing provision will appear in this style type, additions will appear in this style type, and deletions will appear in this style type.
Additions: Whenever a new statutory provision is being enacted (or a new constitutional provision adopted), the text of the new provision will appear in this style type. Also, the word NEW will appear in that style type in the introductory clause of each SECTION that adds a new provision to the Indiana Code or the Indiana Constitution.
Conflict reconciliation: Text in a statute in this style type or this style type reconciles conflicts between statutes enacted by the 2009 Regular and Special Sessions of the General Assembly.

SENATE BILL No. 67



    A BILL FOR AN ACT to amend the Indiana Code concerning trusts and fiduciaries.

Be it enacted by the General Assembly of the State of Indiana:

SOURCE: IC 30-4-2.1-13; (10)SB0067.1.1. -->     SECTION 1. IC 30-4-2.1-13 IS ADDED TO THE INDIANA CODE AS A NEW SECTION TO READ AS FOLLOWS [EFFECTIVE JULY 1, 2010]: Sec. 13. (a) The following rules apply only to discretionary interests:
        (1) A discretionary interest is a mere expectancy that is neither a property interest nor an enforceable right.
        (2) A creditor may not:
            (A) require a trustee to exercise the trustee's discretion to make a distribution; or
            (B) cause a court to foreclose a discretionary interest.
        (3) A court may review a trustee's distribution discretion only if the trustee acts dishonestly or with an improper motive.
    (b) Words such as sole, absolute, uncontrolled, or unfettered discretion dispense with the trustee acting reasonably.
    (c) Absent express language to the contrary, if the distribution language in a discretionary interest permits unequal distributions between beneficiaries or distributions to the exclusion of other

beneficiaries, a trustee may, in the trustee's discretion, distribute all of the accumulated, accrued, or undistributed income and principal to one (1) beneficiary to the exclusion of the other beneficiaries.
    (d) Regardless of whether a beneficiary has any outstanding creditors, a trustee of a discretionary interest may directly pay any expense on behalf of the beneficiary and may exhaust the income and principal of the trust for the benefit of the beneficiary. A trustee is not liable to a creditor for paying the expenses of a beneficiary who holds a discretionary interest.

SOURCE: IC 30-4-2.1-14; (10)SB0067.1.2. -->     SECTION 2. IC 30-4-2.1-14 IS ADDED TO THE INDIANA CODE AS A NEW SECTION TO READ AS FOLLOWS [EFFECTIVE JULY 1, 2010]: Sec. 14. If a party challenges a settlor or a beneficiary's influence over a trust, none of the following factors, alone or in combination, may be considered dominion and control over a trust:
        (1) A beneficiary serving as a trustee or co-trustee.
        (2) The settlor or beneficiary holds an unrestricted power to remove or replace a trustee.
        (3) The settlor or a beneficiary:
            (A) is a trust administrator, a general partner of a partnership, a manager of a limited liability company, or an officer of a corporation; or
            (B) has any other managerial function in any other entity
;
         that is owned in whole or in part by the trust.
        (4) A person related by blood or adoption to a settlor or beneficiary is appointed as trustee.
        (5) An agent, accountant, attorney, financial adviser, or friend of the settlor or a beneficiary is appointed as trustee.
        (6) A business associate of the settlor or a beneficiary is appointed as trustee.
        (7) A beneficiary holds any power of appointment over part or all of the trust property.
        (8) The settlor holds a power to substitute property of equivalent value.
        (9) The trustee may loan trust property to the settlor for less than a full and adequate rate of interest or without adequate security.
        (10) The trust contains broad purposes or highly discretionary distribution language.
        (11) The trust has only one (1) beneficiary eligible for current distributions.

SOURCE: IC 30-4-2.1-15; (10)SB0067.1.3. -->     SECTION 3. IC 30-4-2.1-15 IS ADDED TO THE INDIANA CODE

AS A NEW SECTION TO READ AS FOLLOWS [EFFECTIVE JULY 1, 2010]: Sec. 15. Absent clear and convincing evidence otherwise, a settlor of an irrevocable trust may not be considered the alter ego of a trustee. The following factors, alone or in combination, are not sufficient evidence to conclude that the settlor controls a trustee or is the alter ego of the trustee:
        (1) Any combination of the factors listed in section 14 of this chapter.
        (2) Isolated occurrences of the settlor signing checks, making disbursements, or executing other documents related to the trust as a trustee when the settlor is, in fact, not a trustee.
        (3) Requesting a trustee to make distributions on behalf of a beneficiary.
        (4) Requesting a trustee to hold, purchase, or sell any trust property.

SOURCE: IC 30-4-2.1-16; (10)SB0067.1.4. -->     SECTION 4. IC 30-4-2.1-16 IS ADDED TO THE INDIANA CODE AS A NEW SECTION TO READ AS FOLLOWS [EFFECTIVE JULY 1, 2010]: Sec. 16. (a) A creditor may not reach, exercise, or otherwise acquire an interest of a beneficiary or any other person who holds an unconditional or conditional removal or replacement power over a trustee. A power described in this subsection is personal to a beneficiary or other person and may not be exercised by the person's creditors. A court may not direct a person to exercise the power.
    (b) A creditor may not:
        (1) reach an interest of a beneficiary who is also a trustee or co-trustee; or
        (2) otherwise compel a distribution to a beneficiary who is also a trustee or co-trustee.
    (c) A court may not foreclose against an interest held by a beneficiary described in subsection (b).

SOURCE: IC 30-4-3-35; (10)SB0067.1.5. -->     SECTION 5. IC 30-4-3-35 IS ADDED TO THE INDIANA CODE AS A NEW SECTION TO READ AS FOLLOWS [EFFECTIVE JULY 1, 2010]: Sec. 35. (a) As used in this section, "joint matrimonial trust" means a single inter vivos trust established under this section by settlors who are related as husband and wife.
    (b) As used in this section, "matrimonial property" means real property that:
        (1) is subject to a written election to treat the property as matrimonial property under this section; and
        (2) is owned by a matrimonial trust.
    (c) As used in this section, "matrimonial trust" means a trust

established under this section to own matrimonial property.
    (d) As used in this section, "separate matrimonial trust" means a separate trust that is also a matrimonial trust.
    (e) As used in this section, "separate trust" means a trust established by one (1) individual.
    (f) A matrimonial trust may be established:
        (1) jointly by a husband and wife; or
        (2) in two (2) or more separate trusts.
    (g) A husband and wife may elect to treat real property as matrimonial property with a written statement of the election:
        (1) in an instrument or instruments conveying the real property to a matrimonial trust or trusts; or
        (2) in a separate writing that must be recorded in the county where the real property is situated and indexed in the records of the county recorder's office to the instrument or instruments that convey the real property to a matrimonial trust or trusts.
    (h) A guardian of a husband and wife may make an election under this section:
        (1) without the approval of the court if the guardian has unlimited powers under IC 29-3-8-4; and
        (2) with the approval of the court in all other cases.
    (i) An attorney in fact of a husband and wife may make an election under this section under the powers conferred upon the attorney in fact by IC 30-5-5-2 if the power of attorney is recorded in the county where the real property is situated and indexed in the records of the county recorder's office to the instrument or instruments that convey the real property to a matrimonial trust or trusts.
    (j) An interest in matrimonial property is not severable during the marriage of the husband and wife unless:
        (1) both the husband and wife join in the severance in writing; or
        (2) a third party owns and forecloses a mortgage or other lien against the interests of both the husband and wife in the matrimonial property.
    (k) Notwithstanding any other provision of this section, the legal rights of a lienholder that exist at the time of an election to treat the real property subject to the lien as matrimonial property may not be subject to a severance described in subsection (j) without the lienholder's written consent.
    (l) A matrimonial trust established by an individual continues

to be a matrimonial trust after the death of the settlor if the deceased settlor's separate trust provides to the surviving spouse:
        (1) a life estate;
        (2) an interest that qualifies for a deduction from the gross estate of the decedent under Section 2056 of the Internal Revenue Code regardless of whether an election is made to qualify the interest for the deduction; or
        (3) in some respect the current right to occupy or receive rent, royalties, or other kinds of income with respect to the matrimonial property.
    (m) A separate matrimonial trust ceases to be a matrimonial trust upon the termination of payments to the surviving spouse as a result of the surviving spouse's death or the surviving spouse's disclaimer of all interests in the separate matrimonial trust.
    (n) A joint matrimonial trust ceases to be a matrimonial trust upon the death of one (1) of the settlors.
    (o) A matrimonial trust ceases to be a matrimonial trust upon the dissolution of the marriage of the settlors.
    (p) A husband and wife may revoke a matrimonial trust by together executing a writing expressing the revocation.

SOURCE: IC 30-4-3-36; (10)SB0067.1.6. -->     SECTION 6. IC 30-4-3-36 IS ADDED TO THE INDIANA CODE AS A NEW SECTION TO READ AS FOLLOWS [EFFECTIVE JULY 1, 2010]: Sec. 36. (a) Unless a trust expressly provides otherwise, a trustee who has absolute power under the terms of a trust (referred to in this section as the "first trust") to invade the principal of the trust to make distributions to or for the benefit of one (1) or more persons may instead exercise the power by appointing all or part of the principal of the first trust in favor of a trustee of another trust (referred to in this section as the "second trust") for the benefit of one (1) or more persons under the same trust instrument or under a different trust instrument as long as:
        (1) the beneficiaries of the second trust are the same as the beneficiaries of the first trust;
        (2) the second trust does not reduce any income, annuity, or unitrust interest in the assets of the first trust; and
        (3) if any contributions to the first trust qualified for a marital or charitable deduction for purposes of the federal income, gift, or estate taxes, the second trust does not contain any provision that, if included in the first trust, would have prevented the first trust from qualifying for a deduction or reduced the amount of a deduction.
    (b) For purposes of this section, an absolute power to invade

principal includes a power to invade principal that is not limited to specific or ascertainable purposes, such as health, education, maintenance, and support regardless of whether the term "absolute" is used.
    (c) The exercise of a power to invade principal under subsection (a) must be by an instrument that is:
        (1) in writing;
        (2) signed and acknowledged by the trustee; and
        (3) filed with the records of the first trust.
    (d) The exercise of a power to invade principal under subsection (a) is considered the exercise of a power of appointment, other than a power to appoint to the trustee, the trustee's creditors, the trustee's estate, or the creditors of the trustee's estate. The exercise of the power does not extend the time at which the permissible period of the rule against perpetuities begins and the law that determines the permissible period of the rule against perpetuities of the first trust.
    (e) The trustee shall notify in writing all qualified beneficiaries of the first trust at least sixty (60) days before the effective date of the trustee's exercise of the power to invade principal under subsection (a) of the manner in which the trustee intends to exercise the power. A copy of the proposed instrument exercising the power satisfies the trustee's notice obligation under this subsection. If all qualified beneficiaries waive the notice period by signed written instrument delivered to the trustee, the trustee's power to invade principal may be exercised immediately. The trustee's notice under this subsection does not limit the right of any beneficiary to object to the exercise of the trustee's power to invade principal, except as otherwise provided by this article.
    (f) The exercise of the power to invade principal under subsection (a) is not prohibited by a spendthrift clause or by a provision in the trust instrument that prohibits amending or revoking the trust.
    (g) This section is not intended to create or imply a duty to exercise a power to invade principal. No inference of impropriety may be made as a result of a trustee not exercising the power to invade principal conferred under subsection (a).
    (h) This section may not be construed to abridge the right of any trustee who has a power of invasion to appoint property in further trust that arises under the terms of the first trust, under any other provision of this article or any other statute, or under common law.

SOURCE: IC 30-4-3-37; (10)SB0067.1.7. -->     SECTION 7. IC 30-4-3-37 IS ADDED TO THE INDIANA CODE

AS A NEW SECTION TO READ AS FOLLOWS [EFFECTIVE JULY 1, 2010]: Sec. 37. (a) If a beneficiary of a trust cannot be found after a reasonable search, the trustee may file a petition setting out the facts of the unsuccessful search. The court may order the trustee to sell the shares of the trust to which the beneficiary is entitled and to pay the proceeds to the clerk of the court. The clerk shall hold the proceeds for the use and benefit of the person or persons thereafter determined by law to be entitled to the proceeds.
    (b) If a trustee pays any money to the clerk of the court under this section, the trustee shall file a receipt with the court. Filing the receipt is sufficient to discharge the trustee in the same manner and to the same extent as though the trustee had paid or distributed the appropriate share of the trust to the unlocated beneficiary.
    (c) This section does not apply to stocks, dividends, capital credits, patronage, refunds, utility deposits, membership fees, account balances, or book equities for which the owner cannot be found that are the result of distributable savings of a rural electric membership corporation formed under IC 8-1-13, a rural telephone cooperative corporation formed under IC 8-1-17, or an agricultural cooperative association formed under IC 15-12-1.