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 15-16-912 - Decanting power under limited distributive discretion - definitions

(1)
As used in this section, unless the context otherwise requires, "limited distributive discretion" means a discretionary power of distribution that is limited to an ascertainable standard or a reasonably definite standard.
(2)
An authorized fiduciary that has limited distributive discretion over the principal of the first trust for benefit of one or more current beneficiaries may exercise the decanting power over the principal of the first trust.
(3)
Under this section and subject to section
15-16-914
, a second trust may be created or administered under the law of any jurisdiction. Under this section, the second trusts, in the aggregate, must grant each beneficiary of the first trust beneficial interests which are substantially similar to the beneficial interests of the beneficiary in the first trust.
(4)
A power to make a distribution under a second trust for the benefit of a beneficiary who is an individual is substantially similar to a power under the first trust to make a distribution directly to the beneficiary. A distribution is for the benefit of a beneficiary if:
(a)
The distribution is applied for the benefit of the beneficiary;
(b)
The beneficiary is under a legal disability or the trustee reasonably believes the beneficiary is incapacitated, and the distribution is made as permitted under other law of this state; or
(c)
The distribution is made as permitted under the terms of the first-trust instrument and the second-trust instrument for the benefit of the beneficiary.
(5)
If an authorized fiduciary has limited 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 limited distributive discretion.
Added by 2016 Ch. 228,§ 1, eff. 8/10/2016.
L. 2016: Entire part added, (SB 16-085), ch. 228, p. 880, § 1, effective August 10.
COMMENT
Limited Distributive Discretion
. "Limited distributive discretion" means a discretionary power of distribution that is limited to an ascertainable standard or a reasonably definite standard. Section 15-16-912(1). "Ascertainable standard" is defined in Section
15-16-902(2)
. "Reasonably definite standard" is defined in Section
15-16-902(21)
. "Limited distributive discretion" and "expanded distributive discretion" (see Section
15-16-902(11)
) are mutually exclusive terms. An authorized fiduciary who has expanded distributive discretion over principal may decant under Section
15-16-911
. An authorized fiduciary who has limited distributive discretion over principal may decant under Section 15-16-912. An authorized fiduciary who has no distributive discretion over principal, even if the authorized fiduciary has distributive discretion over income, may not decant under the act except as provided in Section
15-16-913
.
Substantially Similar Beneficial Interests
. When the authorized fiduciary has limited distributive discretion over principal, the authorized fiduciary may exercise the decanting power to effect modifications in administrative provisions, including trustee succession provisions, but may not materially change the dispositive provisions of the trust. This section requires the beneficial provisions of the second trust to be substantially the same as in the first trust, because the settlor did not choose to give the authorized fiduciary expanded discretion. Thus, for example, if a trust provides for principal distributions subject to an ascertainable standard to the settlor's child, and upon the child's death the remainder is to be distributed to Charitable Organization A, the decanting power cannot be exercised in a manner that substantially changes the interests of the child or of Charitable Organization A. Nonetheless, the settlor did entrust the authorized fiduciary with some discretion over principal distributions indicating some confidence in the trustee's judgment, justifying a limited decanting power in these situations.
"Substantially similar" means that there is no material change in a beneficiary's beneficial interests except as provided in subsection (d). A distribution standard that was more restrictive or more expansive would not be substantially similar. Thus if the first trust permitted distributions for support, health care and education, the beneficial interests would not be substantially similar if the second trust permitted distributions only for support and health care. If the first trust, however, permitted distributions for education without elaboration with respect to what was included within the term, the second trust might define education to include college, graduate school and vocational schools if otherwise consistent with applicable law.
If the first trust requires that a trust be distributed at age 35, a second trust that permits the beneficiary to withdraw any part or all of the trust at any time after age 35 would be substantially similar. A second trust that delayed the distribution to age 40 would not be substantially similar.
Changes to a fiduciary's administrative powers or investment powers, changes in a fiduciary, or changes in jurisdiction or the state law governing the administration of the trust, are not material changes in a beneficiary's beneficial interests, even though such changes may have incidental effects on the beneficial interests. For example, changing the trustee from one person to another could impact how the trustee exercises discretionary distribution authority, but is not a material change because the trustee's discretion is subject to the same standard and the trustee is subject to fiduciary duties.
Section 15-16-912(4), which permits distributions to be made for the benefit of the beneficiary instead of directly to such beneficiary, in part reflects existing law and in part expands existing law. Section 816(21) of the Uniform Trust Code permits a trustee to pay an amount distributable to a beneficiary who is under a legal disability or who the trustee reasonably believes is incapacitated by paying it directly to the beneficiary, applying it for the beneficiary's benefit, paying it to certain other persons on behalf of such beneficiary, or managing it as a separate fund on the beneficiary's behalf subject to the beneficiary's continuing right to withdraw the distribution. Section 15-16-912(4)(a) permits an amount distributable to a beneficiary to be applied for the beneficiary's benefit, but does not require that the beneficiary be under a legal disability or incapacitated. Section 15-16-912(4)(b) permits an amount distributable to a beneficiary who is under a legal disability or whom the trustee reasonably believes is incapacitated to be paid as permitted under the state's trust code. Under the Uniform Trust Code, as noted above, the trustee may pay such amount to certain other persons such as a conservator or guardian on behalf of the beneficiary. Section 15-16-912(4)(c) recognizes that the first- trust instrument may contain certain provisions authorizing the trustee to pay amounts distributable to beneficiaries to certain persons on their behalf or in certain ways. If the second-trust instrument also contains the same provisions, they are another permissible way to make distributions to a beneficiary because they were authorized by the settlor.
For example, if a trust requires that all income be distributed to A and permits the trustee to distribute principal to A for A's support, the trustee may decant the trust to require that all trust income be held in an accumulated income fund under the trust agreement, which permits A to withdraw the accumulated income fund at any time and permits the trustee to use the accumulated income fund to directly pay A's expenses. This might be helpful, for example, if A was incapacitated, incarcerated or uninterested in managing the funds herself or himself.
Section 15-16-912 is intended to permit a severance of a trust if the beneficial interests in the second trust, in the aggregate, are substantially similar to the beneficial interests in the first trust. For this purpose, an equal vertical division of a trust in which multiple beneficiaries have equal discretionary interests would usually be considered to be substantially similar. For example, if a testamentary trust created by A provides for discretionary distributions of income and principal to A's children for support, education and health care and A has three living children (B, C and D), the authorized fiduciary may exercise the decanting power under Section 15-16-912 to sever the trust into three equal trusts, one for each of B, C and D. The beneficial interest of each child in the second trusts is different because before the severance each child could conceivably receive discretionary distributions of more than one-third of the first trust and after the severance each child may only receive distributions from such child's second trust (one- third of the first trust). A child's interest would usually be considered substantially similar, however, because the loss of the possibility of receiving distributions of more than one-third of the first trust is offset by the fact that after the severance the other children may not receive discretionary distributions from such child's second trust. A child's interest after severance might not be considered substantially similar, however, if the first-trust instrument made clear that B's health care needs should be given priority and it seemed likely that B's health care needs would exceed one-third of the principal of the first trust.