53-12-62. Power of trustee to distribute income or principal of original trust.

As used in this Code section, the term:#

1. (1)

   “Original trust” refers to the trust from which principal is being distributed.#

2. (2)

   “Second trust” refers to the trust to which assets are being distributed from the original trust, whether a separate trust or an amended version of the original trust.#

1. (1)

   As used in this subsection, the term “current beneficiary” means a person who, on the date of distribution to the second trust, is a distributee or permissible distributee of trust income or principal.#

2. (2)

   Unless the original trust instrument expressly provides otherwise, a trustee, other than a donor to the trust, with the discretionary authority to distribute income or principal of the original trust to make distributions to or for the benefit of one or more of the beneficiaries may also, independently or with court approval, exercise such authority by distributing all or part of the income or principal of the original trust subject to such discretion to a trustee of a second trust; provided, however, that the second trust shall not include as a:#

   1. (A)

      Current beneficiary any person that is not a current beneficiary of income or principal of the original trust; or#

   2. (B)

      Beneficiary any person that is not a beneficiary of the original trust.#

Except as provided in this Code section, a trustee may exercise the power to distribute income or principal of the original trust under subsection (b) of this Code section without the consent of the settlor or the beneficiaries of the original trust if such trustee provides written notice of such trustee’s decision to exercise the power to such settlor, if living, any trust director, and those persons then entitled to annual reports from the trustee of the original trust under subsection (b) of Code Section 53-12-243, taking into account the provisions of the original trust and subsections (c) and (d) of Code Section 53-12-243. Such notice shall:#

1. (1)

   Describe the manner in which such trustee intends to exercise such power;#

2. (2)

   Specify the date such trustee proposes to distribute to the second trust; and#

3. (3)

   Be delivered at least 30 days before the proposed distribution to the second trust.#

The exercise of the power to distribute income or principal of the original trust under subsection (b) of this Code section shall be by an instrument in a writing, signed and acknowledged by the trustee, and filed with the records of the original trust.#

The exercise of the power to distribute income or principal of the original trust under subsection (b) of this Code section shall not extend the permissible period of the rule against perpetuities that applies to such original trust.#

The exercise of the power to distribute income or principal of the original trust under subsection (b) of this Code section by a trustee who is also a beneficiary shall be subject to the limitations of Code Section 53-12-270.#

This Code section shall not be construed to abridge the right of any trustee who has a power to distribute income or principal in further trust that arises under any other law or under common law, and nothing in this Code section shall be construed to imply that the common law does not permit the exercise of a power to distribute income or principal of a trust in the manner authorized under subsection (b) of this Code section.#

A second trust may confer a power of appointment upon a beneficiary of the original trust to whom or for the benefit of whom the trustee has the power to distribute income or principal of such original trust. For purposes of this subsection, the permissible appointees of the power of appointment conferred upon a beneficiary may include persons who are not beneficiaries of such original trust or second trust.#

If any contribution to the original trust qualified for the annual exclusion under Section 2503(b) of the federal Internal Revenue Code, the marital deduction under Section 2056(a) or 2523(a) of the federal Internal Revenue Code, or the charitable deduction under Section 170(a), 2055(a), or 2522(a) of the federal Internal Revenue Code, is a direct skip qualifying for treatment under Section 2642(c) of the federal Internal Revenue Code, or qualified for any other specific tax benefit that would be lost by the existence of the authorized trustee’s authority under subsection (b) of this Code section for income, gift, estate, or generation-skipping transfer tax purposes under the federal Internal Revenue Code, then the authorized trustee shall not have the power to distribute the income or principal of a trust pursuant to subsection (b) of this Code section in a manner that would prevent the contribution to the original trust from qualifying for such exclusion, deduction, or other tax benefit or would reduce such exclusion, deduction, or other tax benefit that was originally claimed with respect to such contribution.#

The exercise of the power to distribute income or principal of the original trust under subsection (b) of this Code section shall be subject to the following limitations with respect to any portion of the original trust or second trust that does or will qualify as a grantor trust with respect to a donor:#

1. (1)

   The second trust need not qualify as a grantor trust for federal income tax purposes, even if the original trust does qualify as a grantor trust, except that if such original trust qualifies as a grantor trust because of the application of Section 672(f)(2)(A) of the federal Internal Revenue Code, such second trust may not include or omit a term that, if included in or omitted from the original trust instrument, would have prevented such original trust from qualifying under such section;#

2. (2)

   Notwithstanding any other provision of this Code section, when the original trust does not qualify as a grantor trust and the donor is alive, the terms of the second trust shall not provide for a power of disposition that is not exempt from the application of subsection (a) of Section 674 of the federal Internal Revenue Code unless an adverse party, as defined in subsection (a) of Section 672 of the federal Internal Revenue Code, approves or consents to the inclusion of the power in the second trust. Subject to paragraph (3) of this subsection, the second trust may qualify as a grantor trust pursuant to other sections of the federal Internal Revenue Code;#

3. (3)

   Unless the donor objects in a writing delivered to the trustee before the date the trustee proposes to distribute from the original trust to the second trust, such second trust may qualify as a grantor trust for federal income tax purposes, even if such original trust does not so qualify, except that if such original trust does not so qualify and such second trust will so qualify, in whole or in part, with respect to the donor, such second trust shall grant such donor or another person a power that would cause such second trust to cease to be a grantor trust for federal income tax purposes; and#

4. (4)

   When both the original trust and the second trust qualify as grantor trusts for federal income tax purposes and such original trust grants the donor or another person the power to cause such original trust to cease to be a grantor trust, such second trust shall grant an equivalent power to the donor or another person unless such donor objects in a writing delivered to the trustee before the date the trustee proposes to distribute from such original trust to such second trust.#

5. For purposes of this subsection, a trust that is a “grantor trust” or that qualifies as a “grantor trust” shall mean a trust, or portion of a trust, of which the donor is treated as the owner of the trust property for federal income tax purposes pursuant to Subchapter J of the federal Internal Revenue Code.

During any period when the original trust owns stock in a Subchapter “S” corporation as defined in Section 1361(a)(1) of the federal Internal Revenue Code, an authorized trustee shall not exercise a power authorized by subsection (b) of this Code section to distribute part or all of the stock of the Subchapter “S” corporation to a second trust that is not a permitted shareholder under Section 1361(c)(2) of the federal Internal Revenue Code.#

A trustee or other person that reasonably relies on the validity of a distribution of property of the original trust to the second trust under subsection (b) of this Code section or any other law or common law shall not be liable for any action or failure to act as a result of such reliance.#

This Code section shall not create or imply a duty for a trustee or trust director to exercise a power conferred by this Code section.#

If exercise of the power to distribute income or principal of the original trust would be effective under subsection (b) of this Code section except that the second trust in part does not comply with this Code section, such exercise of the power shall be effective, a provision in such second trust that is not permitted under this Code section shall be void to the extent necessary to comply with this Code section, and a provision required by this Code section to be in such second trust that is not contained in such second trust shall be deemed to be included in such second trust to the extent necessary to comply with this Code section.#

The donor of the original trust shall be deemed to be the donor of the second trust with respect to the portion of the income or principal of the original trust subject to the exercise of the power to distribute the principal of such original trust under subsection (b) of this Code section. The settlor of the second trust shall be the person who creates the second trust, including a testator in the case of a testamentary trust; provided, however, that, if the trustee of the original trust creates the second trust, the settlor of the original trust shall be deemed to be the settlor of the second trust.#

A debt, liability, or other obligation enforceable against property of the original trust shall be enforceable to the same extent against the property when held by the second trust after exercise of the power to distribute the income or principal of such original trust under subsection (b) of this Code section.#

This Code section shall apply to any trust that:#

1. (1)

   Has its principal place of administration in this state, including a trust whose principal place of administration has been changed to this state; or#

2. (2)

   Provides in its trust instrument that it is governed by the law of this state or is governed by the law of this state for the purpose of:#

   1. (A)

      Administration, including administration of a trust whose governing law for purposes of administration has been changed to the law of this state;#

   2. (B)

      Construction of the terms of the trust; or#

   3. (C)

      Determining the meaning or effect of the terms of the trust.#

This Code section shall not apply to charitable trusts.#