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 15-16-911 - Decanting power under expanded distributive discretion - definitions

(1)
As used in this section, unless the context otherwise requires:
(a)
"Noncontingent right" means a right that is not subject to the exercise of discretion or the occurrence of a specified event that is not certain to occur. The term does not include a right held by a beneficiary if any person has discretion to distribute property subject to the right to any person other than the beneficiary or the beneficiary's estate.
(b)
"Presumptive remainder beneficiary" means a qualified beneficiary other than a current beneficiary.
(c)
"Successor beneficiary" means a beneficiary that is not a qualified beneficiary on the date the beneficiary's qualification is determined. The term does not include a person that is a beneficiary only because the person holds a nongeneral power of appointment.
(d)
"Vested interest" means:
(I)
A right to a mandatory distribution that is a noncontingent right as of the date of the exercise of the decanting power;
(II)
A current and noncontingent right, annually or more frequently, to a mandatory distribution of income, a specified dollar amount, or a percentage of value of some or all of the trust property;
(III)
A current and noncontingent right, annually or more frequently, to withdraw income, a specified dollar amount, or a percentage of value of some or all of the trust property;
(IV)
A presently exercisable general power of appointment; or
(V)
A right to receive an ascertainable part of the trust property on the trust's termination which is not subject to the exercise of discretion or to the occurrence of a specified event that is not certain to occur.
(2)
Subject to subsection (3) of this section and section
15-16-914
, an authorized fiduciary that has expanded distributive discretion over the principal of a first trust for the benefit of one or more current beneficiaries may exercise the decanting power over the principal of the first trust.
(3)
Subject to section
15-16-913
, in an exercise of the decanting power under this section, a second trust may not:
(a)
Include as a current beneficiary a person that is not a current beneficiary of the first trust, except as otherwise provided in subsection (4) of this section;
(b)
Include as a presumptive remainder beneficiary or successor beneficiary a person that is not a current beneficiary, presumptive remainder beneficiary, or successor beneficiary of the first trust, except as otherwise provided in subsection (4) of this section; or
(c)
Reduce or eliminate a vested interest.
(4)
Subject to section
15-16-914
and paragraph (c) of subsection (3) of this section, in an exercise of the decanting power under this section, a second trust may be a trust created or administered under the law of any jurisdiction and may:
(a)
Retain a power of appointment granted in the first trust;
(b)
Omit a power of appointment granted in the first trust, other than a presently exercisable general power of appointment;
(c)
Create or modify a power of appointment if the powerholder is a current beneficiary of the first trust and the authorized fiduciary has expanded distributive discretion to distribute principal to the beneficiary; and
(d)
Create or modify a power of appointment if the powerholder is a presumptive remainder beneficiary or successor beneficiary of the first trust, but the exercise of the power may take effect only after the powerholder becomes, or would have become if then living, a current beneficiary.
(5)
A power of appointment described in paragraph (a), (b), (c), or (d) of subsection (4) of this section may be general or nongeneral. The class of permissible appointees in favor of which the power may be exercised may be broader than or different from the beneficiaries of the first trust.
(6)
If an authorized fiduciary has expanded distributive discretion over part but not all of the principal of a first trust, the fiduciary may exercise the decanting power under this section over that part of the principal over which the authorized fiduciary has expanded distributive discretion.
Added by 2016 Ch. 228, § 1, eff. 8/10/2016.
L. 2016: Entire part added, (SB 16-085), ch. 228, p. 878, § 1, effective August 10.
COMMENT
Noncontingent Right
. The term "noncontingent right" describes interests that are certain to occur. A right is not noncontingent if it is subject to the occurrence of a specified event that is not certain to occur. For example, if A's children who survive A are to receive trust assets upon A's death, the rights of A's children are not noncontingent, because each must survive A to take and they may not survive A. The rights of A's children are not noncontingent regardless of whether the requirement of survival is expressed as a condition precedent or a condition subsequent. Thus the result is the same if the gift upon A's death is to A's children in equal shares, but if any child predeceases A such child's share shall be distributed to such child's descendants in shares per stirpes.
A right also is not a noncontingent right if it is subject to the exercise of discretion. Thus if a trustee has discretion to make distributions to A and A's descendants for their support and health care, the interests of A and A's descendants are not noncontingent. The result is the same even if the trust directs the trustee to make distributions to A and A's descendants for their support and health care because the timing and amount of the distributions are subject to the trustee's discretion.
A right also is not noncontingent if a person has discretion to distribute the property subject to the interest to any person other than the beneficiary or the beneficiary's estate. Thus if a trust provides that all income shall be distributed annually to A, but gives the trustee discretion to distribute principal to B for B's support and medical care, A's right is not noncontingent.
A current mandatory right to receive income, an annuity or a unitrust payment where the trustee has no discretion to make distributions to others is a noncontingent right.
Presumptive Remainder Beneficiary
. "Presumptive remainder beneficiary" means a qualified beneficiary (see Section
15-16-902(20)
) other than a current beneficiary (see Section
15-16-902(9)
) . The presumptive remainder beneficiaries might be termed the first-line remainder beneficiaries. These are the beneficiaries who would become eligible to receive distributions were the event triggering the termination of a current beneficiary's interest or of the trust itself to occur on the date in question. Such a terminating event will often be the death or deaths of the current beneficiaries. A person who would have a presently exercisable general power of appointment if the trust terminated on that date or if the interests of the current beneficiaries terminated on that date without causing the trust to terminate is a presumptive remainder beneficiary.
Presumptive remainder beneficiaries can include takers in default of the exercise of a power of appointment. The term may sometimes include the persons entitled to receive the trust property pursuant to the irrevocable exercise of an inter vivos power of appointment. Because the exercise of a testamentary power of appointment is not effective until the testator's death, the qualified beneficiaries do not include appointees under the will of a living person. Nor would the term include the objects of an unexercised inter vivos power.
Successor Beneficiary
. The term "successor beneficiary" means a beneficiary who has a future beneficial interest in a trust, vested or contingent, including a person who may become a beneficiary in the future by reason of inclusion in a class, other than a beneficiary who is a qualified beneficiary. Thus it includes beneficiaries who might be termed "second line" or more remote remainder beneficiaries. It also includes unborn or unascertained beneficiaries who are beneficiaries by reason of being members of a class. It does not include, however, a person who is merely a holder of a power of appointment but not otherwise a beneficiary.
Vested Interest
. "Vested interest" includes a right to a mandatory distribution that is a noncontingent right as of the date of the exercise of the decanting power. Section 15-16-911(1)(d)(I). For example, if the trustee is required to distribute the trust principal to A when A attains age 30 if A is then living, and A has attained age 30 but the trustee has not yet made the distribution, A's right to receive the trust principal is a right to a mandatory distribution that is a noncontingent right. If A is age 29, however, A's right is not a noncontingent right because A must survive to age 30.
The right to a mandatory distribution does not include a right to a distribution pursuant to a standard or a right to a distribution in the discretion of a fiduciary. Thus a right to receive distributions for "support and health care," or for "best interests" would not be a mandatory distribution right for purposes of Section 15-16-911.
"Vested interest" also includes a current and noncontingent right, annually or more frequently, to a mandatory distribution of income, a specified dollar amount or a percentage of value of some or all of the trust properties. Section 15-16-911(1)(d)(II). Thus if A is currently entitled to all trust income payable annually, and the trustee has no discretion to not pay the income to A and no discretion to distribute principal to anyone other than A, A's right to income is a vested interest. A's right to income is a vested interest even if the trustee has discretion to distribute principal to A. The result is the same if instead of an income right, A has the right to receive a specified dollar amount or a percentage of value of trust assets. A's right is a vested interest even if the right will cease upon some future event, such as A's death or a particular date, so long as the future event is not an exercise of fiduciary discretion. A specified dollar amount includes a dollar amount that is dependent upon factors other than fiduciary discretion or specific events not certain to occur, such as the inflation rate. A "vested interest" includes a current right to a unitrust distribution based on the value of certain or all trust assets.
A fiduciary's power to make equitable adjustments to income or principal, whether granted under the trust instrument or state law, does not make an income interest not mandatory or not noncontingent. A fiduciary's power to exclude certain assets in determining a unitrust distribution to attain an equitable result, whether granted under the trust instrument or state law, does not make a unitrust interest not mandatory or not noncontingent. For example, a beneficiary's current right to receive an annual distribution equal to 4 % of the value of the trust principal is a vested interest even if the fiduciary has a right to exclude from the value of trust principal non-income producing assets.
Even if all conditions to such right have been met, the decanting may eliminate current mandatory rights to income, annuity or unitrust distributions that have come into effect with respect to a beneficiary if the authorized fiduciary has discretion to make principal distributions to another beneficiary. For example, if the first trust provides for mandatory income distributions to A, but permits the authorized fiduciary to make discretionary principal distributions to A, B or C for their best interests, the decanting may eliminate A's mandatory income interest. In such case the first trust indirectly gave the authorized fiduciary the ability to reduce or eliminate A's income interest by making discretionary principal distributions to B or C.
A right to receive mandatory payments less frequently than annually is not a vested interest. For example, a right to receive 5 % of the trust value every fifth year is not a vested interest, except with respect to any amounts currently payable. As another example, a right to receive distributions of one-third of the trust principal at ages 30, 35 and 40 is not a vested interest if the beneficiary has not attained age 30. If the beneficiary is age 30 but the trustee has not yet distributed the one-third payable at age 30, the beneficiary's right to that one-third is a vested interest, but the beneficiary's right to receive distributions at ages 35 and 40 is not a vested interest.
"Vested interest" also includes a current and noncontingent right, annually or more frequently, to
withdraw
income, a specified dollar amount, or a percentage of value of some or all of the trust property. Section 15-16-911(1)(d)(III). Thus, for example, it makes no difference whether the trustee is required to distribute income annually or whether the beneficiary may withdraw income annually. As another example, if B has a current right to withdraw annually the greater of $5,000 or 5 % of the trust value each year, B's right is a vested interest. If B's right to withdraw did not begin until B attained age 25 and B has not attained age 25, B's right would not be a vested interest.
"Vested interest" also includes a presently exercisable general power of appointment. A power of appointment is presently exercisable if it is exercisable at the time in question. Typically, a presently exercisable power of appointment is exercisable at the time in question during the powerholder's life and also at the powerholder's death, e.g., by the powerholder's will. Thus, a power of appointment that is exercisable "by deed or will" is a presently exercisable power.
A power to withdraw from a trust is a power of appointment.
See
Restatement Third of Trusts § 56 comment b. Thus if a beneficiary has already attained an age at which the beneficiary can withdraw all or a portion of the trust, the second trust may not modify or eliminate that right of withdrawal. If a Crummey withdrawal power is still in effect with respect to a prior contribution to the trust, the second trust cannot modify or eliminate the Crummey withdrawal right.
For example, if the trustee may make discretionary distributions to C and C's descendants, C has a right to withdraw one-half of trust principal after attaining age 28, and C has attained age 28, C's right is a vested interest under Section 15-16- 911(1)(d)(IV) even if the trustee has power to distribute trust principal to anyone other than C.
"Vested interest" also includes a right to receive an ascertainable part of the trust property on the trust's termination which is not subject to the exercise of discretion or to the occurrence of a specified event that is not certain to occur. Thus if the trustee is to distribute income to F, and upon F's death is to distribute the principal to G or G's estate, G's interest is a vested interest. G would not have a vested interest if the trustee had discretion to distribute principal to F or if G was required to survive F to take the remainder interest. Thus the right of a person to receive the trust property upon the termination of such trust if such person is then living would not be a vested interest. Any interest with a condition is not a vested interest, regardless of whether the condition is a condition precedent or condition subsequent. For example, A does not have a vested interest if upon termination the trust property passes to A or A's estate, provided that A is then married or was married at the time of A's prior death.
Expanded Distributive Discretion Decanting
. Under Section 15-16-911 an authorized fiduciary who has expanded distributive discretion to distribute all or part of the principal of a trust to one or more of the current beneficiaries may exercise the decanting power over the principal subject to such expanded distributive discretion.
"Expanded distributive discretion" is defined in Section
15-16-902(11)
. When a trustee is granted expanded distributive discretion, that is an indication that the settlor intended to rely on the trustee's judgment and discretion in making distributions. The settlor's faith in the trustee's judgment supports the assumption that the settlor would trust the trustee's judgment in making modifications to the trust instrument in light of changed circumstances including the beneficiary's circumstances and changes in tax and other laws.
The decanting power, like most discretionary distribution powers, can be exercised over all or part of the first trust. If it is exercised over only part of the first trust, the second trust would need to be a separate trust and could not be a continuation of the first trust. If the decanting power is exercised to distribute property of the first trust to more than one second trusts, then the second trusts (or at least all but one of the second trusts) would need to be separate trusts and could not be a continuation of the first trust.
If the authorized fiduciary has expanded discretion over only part of the first trust, the authorized fiduciary may exercise the decanting power under this section only over such part. See Section 15-16-911(6). With respect to the remainder of the trust, the authorized fiduciary may have the ability to decant under Section
15-16-912
or Section
15-16-913
.
The second trust may contain any terms permissible for a trust subject only to the restrictions found in the act. Thus subject to subsections (3) and (6) of Section 15-16-911 and the other restrictions in Sections
15-16-914
through
15-16-920
and subject to the fiduciary duty in Section
15-16-904(1)
, the second trust may (1) eliminate (but not add) one or more current beneficiaries; (2) make a current beneficiary a presumptive remainder beneficiary or a successor beneficiary; (3) eliminate (but not add) one or more presumptive remainder and successor beneficiaries; (4) make a presumptive remainder beneficiary a successor beneficiary, or vice versa; (5) alter or eliminate rights that are not vested interests; (6) change the standard for distributions; (7) add or eliminate a spendthrift provision; (8) extend the duration of a trust (subject to Section
15-16-920
); (9) change the jurisdiction of the trust and the law governing the administration of the trust (subject to Section
15-16-914(5)
) ; (10) eliminate, modify or add powers of appointment; (11) change the trustee or trustee succession provisions; (12) change the powers of the trustee; (13) change administrative provisions of the trust; (14) add investment advisors, trust protectors or other fiduciaries; (15) divide a trust into more than one trust; and (16) consolidate trusts. The foregoing list merely provides examples and is not exhaustive.
The second trust, however, cannot make a remainder beneficiary a current beneficiary. This prohibition on accelerating a remainder interest is included to avoid any argument under Internal Revenue Code Section 674 that the mere existence of a power to make a remainder beneficiary a current beneficiary causes the trust to be a grantor trust, whether or not the decanting power is ever exercised in such manner.
Section 15-16-911(3)(c) prohibits the second trust from reducing or eliminating a vested interest. A vested interest is not reduced, however, just because other changes made as a result of a decanting may have incidental effects on the interest. For example, a modification of the fiduciary's investment powers or the manner of determining the fiduciary's compensation may have incidental effects on a beneficiary's interest, but such modifications do not reduce a vested interest.
The restrictions in Section 15-16-911(3)(c) do not apply to a decanting under Section
15-16-913
. Section
15-16-913(3)(b)
.
Subsections (4) and (5) permit the second trust to retain or omit a power of appointment included in the first trust, or to create powers of appointment in one or more current beneficiaries of the first trust. For example, if the first trust permits the authorized fiduciary to make discretionary distributions of income or principal to the settlor's child A, and upon A's death the remainder is allocated for the settlor's descendants per stirpes, to be held in further trust for each such descendant, the second trust could grant A a lifetime and/or testamentary power, general or nongeneral. The second trust could grant A a lifetime power to appoint to A's descendants, spouse and charitable organizations and a testamentary power to appoint to A's estate or to the creditors of A's estate. The second trust also could provide that each descendant of the settlor for whom a trust is established at A's death will have an inter vivos or a testamentary, general or limited, power of appointment. The second trust could even give A's now living children, D and E, powers of appointment that they may exercise in their Wills, but that will only take effect upon A's death or, if later, their deaths.
Subsection (5) makes clear that persons who are not otherwise beneficiaries of the first trust may be permissible appointees of a power of appointment granted to a current beneficiary.
Sometimes state law may provide more than one method for making the same modification to a trust. For example, a combination of trusts or a division of a trust that would be permitted under Section 417 of the Uniform Trust Code may also be accomplished under this act through decanting. When a desired modification could be accomplished by decanting or by another method, the trustee may select either method.