Utah Code § 75B-2-812.5 — Utah Code / Title 75B / Chapter 75B-2 / § 75B-2-812.5
§ 75B-2-812.5. Discretionary power -- Decanting a trust.
Status: in_force

(1) As used in this section: (a) "Current income beneficiary" means the same as that term is defined in Section 75A-5-102. (b) "Decanting power" means the power of a trustee as described in Subsection (2)(a): (i) to distribute income or principal from a first trust to a second trust; or (ii) to modify the terms of a first trust. (c) "First trust" means a trust over which a trustee exercises discretion to distribute income or principal to, or for the benefit of, a beneficiary. (d) "General power to change the trustees" means a beneficiary may, whether alone or in concert with other persons: (i) name the beneficiary as a trustee; or (ii) remove a trustee and replace that trustee with a new trustee who is: (A) the beneficiary; or (B) a related or subordinate party, as defined in Section 672(c) of the Internal Revenue Code, of the beneficiary. (e) "Restricted trustee" means a trustee of the first trust if: (i) the trustee is also a beneficiary of the first trust; or (ii) a beneficiary of the first trust holds a general power to change the trustees of the first trust. (f) "Second trust" means: (i) a trust to which a distribution of income or principal from a first trust is made to the trustee of the trust under Subsection (2)(a)(i); or (ii) a trust that is modified under Subsection (2)(a)(ii). (2) (a) If a trustee has discretion under the terms of a trust instrument to distribute income or principal to, or for the benefit of, a beneficiary of a trust, the trustee may: (i) distribute part or all of the income or principal to a trust governed by a trust instrument that is separate from the trust instrument of the first trust; or (ii) modify the terms of the trust instrument of the first trust. (b) A trustee may not exercise the decanting power if the terms of the trust instrument for the first trust expressly prohibit the trustee from: (i) distributing part or all of the income or principal to a trust governed by a trust instrument that is separate from the trust instrument of the first trust; or (ii) modifying the terms of the trust instrument of the first trust. (c) Before a trustee exercises the decanting power to modify the terms of the trust instrument of a first trust, the trustee shall notify all beneficiaries of the trust, in writing, at least 20 days before the day on which the trustee exercises the decanting power. (3) Before a trustee exercises the decanting power, the trustee shall determine whether distribution or modification is necessary or desirable after taking into account: (a) the purposes of the first trust; (b) the terms and conditions of the second trust; and (c) the consequences of the distribution. (4) A trustee may only exercise the decanting power if the second trust has a beneficiary that is a beneficiary of the first trust to or for whom: (a) a trustee has discretion to distribute income or principal from the first trust; or (b) a trustee may distribute income or principal in the future from the first trust at a time, or upon the happening of an event, that is specified in the trust instrument of the first trust. (5) Except as provided in Subsection (6), a restricted trustee may not exercise the decanting power if the distribution would have the effect of: (a) benefiting the restricted trustee as a beneficiary of the first trust, unless the distribution is limited to an ascertainable standard based on or related to health, education, maintenance, or support; (b) increasing the distributions that can be made from the second trust to a restricted trustee, or to a beneficiary holding a general power to change the trustees of the first trust, compared to the distributions that can be made to the restricted trustee, or to the beneficiary holding a general power to change the trustees, under the first trust, unless the distribution is limited to an ascertainable standard based on or related to health, education, maintenance, or support; or (c) removing restrictions on a discretionary distribution imposed by the trust instrument of the first trust, unless the trust instrument of the second trust limits distributions of income or principal from the second trust to: (i) an ascertainable standard based on or related to the health, education, maintenance, or support of a beneficiary; or (ii) a trust described in 42 U.S.C. Sec. 1396p(d)(4). (6) Subsection (5) limits a restricted trustee's exercise of the decanting power only if: (a) at least one restricted trustee is a United States citizen or domiciliary under the Internal Revenue Code; (b) at least one beneficiary holding a general power to change the trustees of the first trust is a United States citizen or domiciliary under the Internal Revenue Code; or (c) the first trust owns property that would be subject to United States estate or gift taxes if owned free of the trust by: (i) the restricted trustee of the first trust if there is a restricted trustee of the first trust; or (ii) the beneficiary holding a general power to change the trustees of the first trust if there is a beneficiary holding a general power to change the trustees of the first trust. (7) If a trust contribution has been treated as a gift qualifying for the exclusion from the gift tax described in Section 2503(b) of the Internal Revenue Code, the trust instrument for the second trust shall provide that the beneficiary's remainder interest must vest no later than the day on which the remainder interest would have vested under the terms of the trust instrument for the first trust. (8) A trustee's exercise of the decanting power as described in Subsection (2): (a) may not reduce an income interest of a current income beneficiary of: (i) a trust for which a marital deduction has been taken for federal tax purposes under Section 2056 or 2523 of the Internal Revenue Code or for state tax purposes under a comparable state law; (ii) a charitable remainder trust under Section 664 of the Internal Revenue Code; or (iii) a grantor retained annuity or unitrust trust under Section 2702 of the Internal Revenue Code; (b) does not apply to property of a trust that is subject to a power of withdrawal held by a beneficiary of the trust to whom, or for the benefit of whom, the trustee has authority to distribute income or principal, unless after the distribution of income or principal under Subsection (4) the beneficiary's power of withdrawal is unchanged with respect to the property of a trust; (c) is not prohibited by: (i) a spendthrift clause in the first trust; or (ii) a clause in the trust instrument of the first trust that prohibits amendment or revocation of the trust; (d) is an exercise of a power of appointment; and (e) may not be exercised in a manner that would cause the decanting power to be a general power of appointment as described in Section 2041 or 2514 of the Internal Revenue Code. (9) (a) This section does not preclude the trust instrument of a second trust from granting a power of appointment to a beneficiary of the second trust that is a beneficiary of the first trust. (b) A power of appointment described in Subsection (9)(a) may include the power to appoint trust property to the holder of the power of appointment, the holder's creditors, the holder's estate, the creditors of the holder's estate, or any other person regardless of whether that person is a beneficiary of the second trust. (10) This section applies to a trust administered under the laws of this state, including a trust whose governing jurisdiction is transferred to this state.