2023 Colorado Revised Statutes › Title 15 - PROBATE, TRUSTS, AND FIDUCIARIES (§§ 15-1-101 — 15-24-403) › COLORADO PROBATE CODE (§§ 15-10-101 — 15-17-103) › Article 16 - TRUST ADMINISTRATION (§§ 15-16-101 — 15-16-931) › Part 9 - COLORADO UNIFORM TRUST DECANTING ACT (§§ 15-16-901 — 15-16-931) › Section 15-16-913 - Trust for beneficiary with disability - definitions

(1)
As used in this section, unless the context otherwise requires:
(a)
"Beneficiary with a disability" means a beneficiary of a first trust who the special-needs fiduciary believes may qualify for governmental benefits based on disability, whether or not the beneficiary currently receives those benefits or is an individual who has been adjudicated an incapacitated person.
(b)
"Governmental benefits" means financial aid or services from a state, federal, or other public agency.
(c)
"Special-needs fiduciary" means, with respect to a trust that has a beneficiary with a disability:
(I)
A trustee or other fiduciary, other than a settlor, that has discretion to distribute part or all of the principal of a first trust to one or more current beneficiaries;
(II)
If no trustee or fiduciary has discretion under subparagraph (I) of this paragraph (c), a trustee or other fiduciary, other than a settlor, that has discretion to distribute part or all of the income of the first trust to one or more current beneficiaries; or
(III)
If no trustee or fiduciary has discretion under subparagraph (I) or (II) of this paragraph (c), a trustee or other fiduciary, other than a settlor, that is required to distribute part or all of the income or principal of the first trust to one or more current beneficiaries.
(d)
"Special-needs trust" means a trust the trustee believes would not be considered a resource for purposes of determining whether a beneficiary with a disability is eligible for governmental benefits.
(2)
A special-needs fiduciary may exercise the decanting power described in section
15-16-911
over the principal of a first trust as if the fiduciary had authority to distribute principal to a beneficiary with a disability subject to expanded distributive discretion if:
(a)
A second trust is a special-needs trust that benefits the beneficiary with a disability; and
(b)
The special-needs fiduciary determines that exercise of the decanting power will further the purposes of the first trust.
(3)
In an exercise of the decanting power under this section, the following rules apply:
(a)
Notwithstanding section
15-16-911(3)(b)
, the interest in the second trust of a beneficiary with a disability may:
(I)
Be a pooled trust as defined by medicaid law for the benefit of the beneficiary with a disability under
42 U.S.C. sec. 1396p(d)(4)(C)
, as amended; or
(II)
Contain payback provisions complying with reimbursement requirements of medicaid law under
42 U.S.C. sec. 1396p(d)(4)(A)
, as amended.
(b)
Section
15-16-911(3)(c)
does not apply to the interests of the beneficiary with a disability.
(c)
Except as affected by any change to the interests of the beneficiary with a disability, the second trust, or if there are two or more second trusts, the second trusts in the aggregate, must grant each other beneficiary of the first trust beneficial interests in the second trusts which are substantially similar to the beneficiary's beneficial interests in the first trust.
Amended by 2017 Ch. 264,§ 32, eff. 5/25/2017.
Added by 2016 Ch. 228,§ 1, eff. 8/10/2016.
L. 2016: Entire part added, (SB 16-085), ch. 228, p. 881, § 1, effective August 10. L. 2017: IP(3)(a) amended, (SB 17-294), ch. 264, p. 1392, § 32, effective May 25.
In 2016, subsection (1)(d) was numbered as (1)(c)(IV) in SB 16-085 but was renumbered on revision in 2018 to conform to statutory format.
COMMENT
Section 15-16-913 permits an authorized fiduciary to exercise the decanting power over a trust that has a beneficiary with a disability to create a special-needs trust that governmental benefits programs may not consider a "resource" for purposes of the eligibility of the beneficiary with a disability for those benefits. Many governmental benefit programs restrict eligibility for those programs to only persons of limited resources. These resources may include any assets from which the beneficiary with a disability has the right to compel a distribution or a withdrawal. Special-needs trusts are drafted so as to limit the distribution rights of the beneficiary with a disability and thus better permit the beneficiary with a disability to qualify for governmental benefits. Under Section 15-16-913 the authorized fiduciary may modify the dispositive provisions for the beneficiary with a disability even if the authorized fiduciary has no discretion to make distributions or only discretion over income.
Beneficiary with a Disability
. "Beneficiary with a disability" means a beneficiary who the special-needs fiduciary believes may qualify for governmental benefits based on disability. Section 15-16-913(1)(a). The beneficiary need not be adjudicated incompetent or totally incapacitated. The beneficiary need not be currently receiving governmental benefits based on disability. Nor need it be certain that the beneficiary would qualify for such benefits but for the terms of the first trust. The special-needs fiduciary need only have a reasonable belief that the decanting may permit the beneficiary to qualify for such benefits. The governmental benefits must be ones, however, that are based on disability and not merely on financial need. Thus a decanting intended to permit a beneficiary with no disability to qualify for a needs-based college scholarship is not permitted under Section 15-16-913.
Governmental Benefits
. "Governmental benefits" means financial aid or services from a state, federal or other public agency. Section 15-16-913(1)(b). It does not include benefits from a private entity.
Special-Needs Fiduciary
. Because the term "authorized fiduciary" is limited to a fiduciary who has the power to make discretionary distributions of principal and Section 15-16-913 is intended to permit a fiduciary to decant even if the fiduciary does not have discretion over principal, Section 15-16-913 uses the separate term "special-needs fiduciary" to identify the fiduciary who has the power to decant. If there is no fiduciary who has discretion over principal, the special-needs fiduciary is the fiduciary with discretion over income, or if none, the fiduciary who is directed to make distributions. Section 15-16-913(1)(c).
Special-Needs Trust
. "Special-needs trust" means a trust the trustee believes would not be considered a resource for purposes of determining whether a beneficiary with a disability is eligible for governmental benefits based on disability. Section 15-16-913(1)(d).
Furtherance of Purposes of Trust
. The exercise of the decanting power must be in furtherance of the purposes of the first trust. Section 15-16-913(2)(b). Thus the decanting must effectuate better the settlor's broader purposes. In most cases, if the first trust did not anticipate the beneficiary's disability and the settlor's broader purpose was to provide for the beneficiary's support, a decanting that would permit the beneficiary with a disability to qualify for governmental benefits while still being eligible to receive discretionary distributions from the trust would further the purposes of the trust.
For example, assume the first trust was created and funded by A, requires all income to be distributed to the beneficiary after age 21, permits the trustee to distribute principal to the beneficiary pursuant to an ascertainable standard for the beneficiary's support, permits the beneficiary to withdraw the trust principal at age 30, grants the beneficiary a testamentary general power of appointment, and upon the beneficiary's death distributes any unappointed property per stirpes to A's descendants then living. If the beneficiary is age 25 and is disabled, the authorized fiduciary may exercise the decanting power to distribute the principal of the first trust to a trust that provides only for distributions to the beneficiary in the trustee's absolute discretion and upon the beneficiary's death distributes the remaining trust assets per stirpes to A's descendants then living. The exercise of the decanting power may eliminate the beneficiary's right to income, the beneficiary's prospective right to withdraw the trust at age 30 and the beneficiary's power of appointment. The second trust may not, however, change the remainder beneficiaries. Section 15-16-913(3)(c).
The result is the same if the beneficiary is age 31 and thus has a right to withdraw the trust assets, because Section 15-16-913(3)(b) provides that Section
15-16-911(3)(c)
does not apply to the interest of the beneficiary with a disability.
If in the above example the trustee had no discretion to distribute principal, but was either required to distribute income or had discretion to distribute income for A's support, the authorized fiduciary could still decant to a special-needs trust. The trustee would be considered the special-needs fiduciary under Section 15-16-913(1)(c).
The decanting, however, must further the purposes of the first trust. Section 15-16-913(2)(b). For example, if a trust was created solely for the purpose of funding college education for the settlor's grandchildren, the authorized fiduciary may not decant to pay for the support of a grandchild who is a beneficiary with a disability. Conceivably, however, a trust for the education at all levels of the settlor's grandchildren might be decanted to a trust that permits distributions to a grandchild who is a beneficiary with a disability for such grandchild's occupational therapy and vocational training.
Pooled or Payback Trust
. The second trust may be a pooled trust or a payback trust. Section 15-16-913(3)(a). For example, assume a trust was funded by the beneficiary, directly or indirectly, and provides for distributions of income to the beneficiary until age 30 and then provides for the remainder of the trust to be distributed to the beneficiary. The beneficiary is age 28. The authorized fiduciary may exercise the decanting power, and the second trust may be a "pooled trust" or a payback trust. Section 15-16-913(3)(a). The act does not require that the second trust be a "pooled trust" or a payback trust, but other state law may impose such a requirement.
Other Beneficial Interests Must Be Substantially Similar
. Section 15-16-913(3)(c) generally requires that any beneficial interests of beneficiaries other than the beneficiary with a disability be substantially similar to their interests in the first trust except to the extent they are affected by changes to the interest of the beneficiary with a disability. The beneficiary's disability justifies permitting a modification of the interest of the beneficiary with a disability even when the trustee has limited or no discretion, but does not justify otherwise changing the interests of other beneficiaries. The modifications to the interest of the beneficiary with a disability, however, might affect the amount or timing of the other beneficiaries' interests.
Thus if the first trust has more than one current beneficiary, one of whom is a beneficiary with a disability, the special-needs fiduciary may decant under Section
15-16-911
as if the special-needs fiduciary had expanded discretion to distribute principal to the beneficiary with a disability, but may not alter the interests of the other beneficiaries except to the extent they are affected by the changes to the interest of the beneficiary with a disability. For example, assume the first trust was created and funded by A, continues for the rule against perpetuities period, requires that income be distributed per stirpes to A's descendants, and permits discretionary distributions of principal to A's descendants pursuant to an ascertainable standard. The exercise of the decanting power might, for example, distribute part of the principal of the first trust to a special-needs trust solely for the benefit of the beneficiary with a disability (the "Special-Needs Trust") and distribute the remaining principal to a trust solely for the benefit of the nondisabled beneficiaries (the "Non-Special-Needs Trust"), the terms of which are otherwise identical to the terms of the first trust. The Special-Needs Trust might give the trustee absolute discretion to make distributions to the beneficiary with a disability. Upon the death of the beneficiary with a disability, however, the remaining assets of the Special-Needs Trust must be distributed to the Non-Special-Needs Trust, because the decanting cannot change the interests of the non-disabled beneficiaries, except to the extent they are affected by the changes to the interest of the beneficiary with a disability. The non-disabled beneficiaries' remainder interests may be affected, for example, because the trustee of the Special-Needs Trust may make distributions to the beneficiary with a disability in the trustee's absolute discretion and is not limited by an ascertainable standard. The Non- Special-Needs Trust must have the same terms as the first trust, except that it may modify or eliminate the interest of the beneficiary with a disability. So, for example, the Non- Special-Needs Trust might provide that no distributions would be made to the beneficiary with a disability unless the Special-Needs Trust was exhausted.