HB 72

Abstract

Section 1 of the Act addresses statutes under Chapter 33 of Title 12 and (i) clarifies the definition of governing instrument in section 3301(e) to include cross-references to new section 3343; (ii) adds a definition of “published fee schedule” to section 3301(h) as a cross-reference to the schedule or formula required by section 3561 to be filed periodically with the Court of Chancery; (iii) clarifies that section 3303(a) permits a trustor within a governing instrument to vary laws concerning the terms of powers of appointment over trust property; (iv) revises section 3322 regarding the appointment of agents by fiduciaries and the delegation of trust powers to provide that the standard of care applicable to a fiduciary when performing duties delegated to an agent shall apply to the fiduciary when selecting and monitoring the agent (and not to the agent), and to permit trust beneficiaries to release the fiduciary from liability for future conduct in monitoring agents—all to correct inconsistencies and conform the law to prevailing practice; (v) clarifies that under subsection 28 of section 3325 (which already permits a division of a trust for any reason), division along family lines is permitted; (vi) clarifies that under section 3338, the requirement for “holders of powers” to join in nonjudicial settlement agreements includes both those who hold powers of appointment and those who hold powers to remove or appoint fiduciaries or nonfiduciaries; (vii) clarifies that section 3341’s provisions regarding the consequences of a merger also apply in the case of trust decantings under section 3328 where a new trust is not created; (viii) clarifies section 3342 (merely by setting off an existing phrase with dashes) that modification with the trustor’s consent is permitted so long as the provisions as modified could have been included in the trust’s governing instrument if the trust were created on the date of the modification; (ix) adds a new section 3343 providing that where a governing instrument authorizes appointment of a successor trustee, multiple trustees may be appointed and fiduciary duties may be allocated among them; and (x) adds a new section 3344 providing that with respect to grantor trusts under the Internal Revenue Code, certain trustees are deemed to have discretion to reimburse a trustor (i.e., the grantor) of such a trust for that trustor’s income tax liabilities attributable to that trust—but without making the trustor a beneficiary of the trust, and not if the provisions of this section would reduce a charitable deduction available to any person for federal or state income or transfer tax purposes. Section 2 of the Act addresses statutes under Chapter 35 of Title 12 and (i) clarifies in section 3528 that after a decanting, the terms of the predecessor trust’s governing instrument are deemed to include the decanting power, in accordance with federal law requirements regarding certain charitable deductions; (ii) clarifies in section 3528 that the standard under section 3315, governing a trustee’s exercise of discretion, also applies to a trustee’s decanting authority in section 3528; (iii) clarifies subsections (c) and (c)(2) of section 3536 (subsection (c)(2) being moved within subsection (c) and expanded) that a trustor eligible for reimbursement from a trust of that trustor’s income tax liabilities attributable to the trust under section 3344 is not a beneficiary of the trust; (iv) clarifies the wording of subsections (c)(4) and (e) of section 3536 (subsection (c)(4) being created from existing wording in former subsection (c)(1) and expanded) regarding a trustor’s right to release a beneficial interest contingent on surviving the trustor’s spouse so as to accelerate the next succeeding beneficial interests; (v) clarifies section 3544 that a trustee has no duty to inquire into or confirm the validity of previous nonjudicial modifications, decantings, mergers, and the like; (vi) amends section 3545 to allow a trust instrument to be executed at a trustor’s direction (intended for situations where a trustor cannot physically sign the governing instrument, thus paralleling a similar provision that has existed for decades in Delaware’s wills statutes), and clarifies section 3545 that (as is the predominating practice) counterpart execution of trust instruments is permitted (subject to existing requirements regarding witnesses); (vii) modifies section 3547 to provide that takers in default under certain nongeneral powers of appointment cannot be virtually represented by the holders of such powers if there is a material conflict of interest—but also clarifies that those who must consent to the exercise of a power must also consent to any such virtual representation by the holder of the power; (viii) adds a cross-reference within section 3547(e) (regarding virtual representation) to section 3322 (regarding delegation); (ix) modifies section 3570 of Delaware’s Qualified Dispositions in Trust Act to allow a trustor to retain within a trust the ability to appoint and serve as a designated representative for a beneficiary under section 3339; (x) clarifies subsection (a)(2) of section 3585 to provide that the report procedure described in that subsection may be used while the trustee is in the process of resigning (and not just after completion of the act of resignation or the effective date of a resignation); and (xi) clarifies that section 3586 applies to governing instruments (which term is defined in section 3301(e)) and not just to trust instruments. Section 3 of the Act addresses statutes under Chapter 5 of Title 25 and (i) makes technical corrections to sections 501 and 504 regarding the method authorized in 2016 by which the donee of a power of appointment over trust property may avoid the application of the general default rule of section 501(a) of title 25 (which provides that interests in property created by the exercise of such a power of appointment are deemed to have been created at the time of the exercise of the power); and (ii) modifies section 505 to conform it with the Uniform Powers of Appointment Act, by allowing powerholders who have a nongeneral power of appointment the option of exercising the power in trust and creating a further nongeneral power of appointment (and not just a further general power of appointment as the existing language provides). Section 4 of the Act provides effective dates.