AN ACT TO AMEND TITLES 12 AND 25 OF THE DELAWARE CODE RELATING TO DECEDENTS’ ESTATES AND PROPERTY.

Legislation Document

SPONSOR:

Rep. Bush & Sen. Mantzavinos & Sen. Townsend

Rep. Carson; Sens. Hocker, Sokola, Walsh

HOUSE OF REPRESENTATIVES

153rd GENERAL ASSEMBLY

HOUSE BILL NO. 297

AN ACT TO AMEND TITLES 12 AND 25 OF THE DELAWARE CODE RELATING TO DECEDENTS’ ESTATES AND PROPERTY.

BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:

Section 1. Amend § 3323, Title 12 of the Delaware Code by making deletions as shown by strike through and insertions as shown by underline as follows:

§ 3323. Cofiduciaries and co-nonfiduciaries.

(a) Unless provided otherwise by the governing instrument,

the following applies:

(1) Any power vested in 2 fiduciaries or nonfiduciaries by the governing instrument or by law must be exercised by both of the fiduciaries or nonfiduciaries.

(2)

any

Any

power vested in 3 or more fiduciaries or nonfiduciaries by the governing instrument or by law

may

must

be exercised by a majority of

such

the

fiduciaries or

nonfiduciaries and

nonfiduciaries.

(3) A fiduciary or nonfiduciary that dissents from the action of the majority of the fiduciaries or nonfiduciaries is not liable with respect to the action to anyone having an interest in the fiduciary fund, or to the other fiduciaries or nonfiduciaries, if the fiduciary’s or nonfiduciary’s dissent is evidenced by a writing delivered to the majority.

(4) Unless otherwise provided in a governing instrument, when the governing instrument names 2 fiduciaries or nonfiduciaries, the fiduciaries or nonfiduciaries may designate 1 of the fiduciaries or nonfiduciaries to perform ministerial functions on behalf of both of the fiduciaries or nonfiduciaries.

(5) Unless otherwise provided in a governing instrument, when the governing instrument names 3 or more fiduciaries or nonfiduciaries,

a majority of

the

fiduciaries or nonfiduciaries

named in a governing instrument

may designate 1

or more

of

such

the

fiduciaries or nonfiduciaries to perform ministerial functions on behalf of all

such

of the

fiduciaries or nonfiduciaries.

A fiduciary or nonfiduciary who dissents from the action of the majority is not liable to anyone having an interest in the fiduciary fund, or to the other fiduciaries or nonfiduciaries, if such dissent is evidenced by a writing delivered to the majority of the fiduciaries or nonfiduciaries.

(b)

This

Unless otherwise expressly provided by a governing instrument or other law of this State, this

section does not excuse a cofiduciary or co-nonfiduciary from liability for

any of the following:

(1)

failure

Failure

to participate in the administration of the fiduciary

fund

fund.

(2)

or for failure

Failure

to attempt to prevent a breach of

trust,

trust.

(3)

or for failure

Failure

to seek advice and guidance from the court in a recurring

situation, unless otherwise expressly provided by the governing instrument.

situation.

Section 2. Amend § 3325, Title 12 of the Delaware Code by making deletions as shown by strike through and insertions as shown by underline as follows:

§ 3325. Specific powers of trustee

.

Without limiting the authority conferred by § 3324 of this title, a trustee may:

(29) Declare 1 or more new trusts for the purpose of merging all, or a portion, of the trust with or into the new trust or trusts and merge all or a portion of the trust with or into any other trust or trusts, including statutory trusts and foreign statutory trusts as defined in § 3801 of this title, whether or not created by the same trustor and whether or not funded prior to the merger, to be held and administered as a single trust

if

and administered in accordance with the terms of such governing instrument as the trustee shall select in connection with such merger, which governing instrument may be the governing instrument of either the transferee trust (as defined in § 3341 of this title) or the transferor trust (as defined in § 3341 of this title), so long as

such a merger would not result in a material change in the dispositive terms of the trust defining the nature and extent of any trust beneficiary’s interest in the principal or income of the trust;

Section 3. Amend § 3326, Title 12 of the Delaware Code by making deletions as shown by strike through and insertions as shown by underline as follows:

§ 3326. Resignation of an officeholder.

(a) For purposes of this section and

§ 3327

§§ 3327 and 3327A

of this title,

the term

“officeholder” includes

all of the following:

(1)

a trustee,

A trustee.

(2)

an “adviser”

An adviser,

as defined in § 3313 of this

title,

title.

(3)

a “designated representative”

A designated representative,

as defined in § 3339 of this

title, and

title.

(4)

an

An

enforcer under § 3556(3) of this title.

(5) A holder of a power to remove or appoint one or more fiduciaries or nonfiduciaries with respect to a trust.

Section 4. Amend Chapter 33 of Title 12 of the Delaware Code by transferring § 3336 of Title 12 of the Delaware Code to § 3327A of Title 12 of the Delaware Code and making deletions as shown by strike through and insertions as shown by underline as follows:

§ 3336.

§ 3327A.

Appointment of

successor trustee.

an officeholder.

(a)

If a

trust has no serving trustee

trust’s governing instrument does not include a provision that effectively can be used to appoint a successor officeholder, an officeholder or successor officeholder may be appointed as provided under this section when the trust does not have a serving officeholder in a given position

for any reason, including

the following:

(1) Due to

the death, incapacity,

removal

removal,

or resignation of the last serving

trustee of the trust,

officeholder in that position.

(2)

or due

Due

to the renunciation or declination of the last named

successor trustee of the trust

officeholder in that position

of its appointment as

such, and if the provisions of the governing instrument do not include any provisions which can be effectively used to appoint a successor trustee, and

such.

(3) Due to the declination to appoint a successor officeholder by the holder or holders of the power to so appoint.

(b) Except as otherwise provided in a governing instrument, when the trust instrument expressly requires an officeholder to be appointed or when a trust has no trustee, the holder or holders of the power to appoint the successor trustee or other officeholder are deemed to have declined to do so if the holder or holders have not appointed a successor trustee or other officeholder within 60 days of being notified of the corresponding vacancy.

(c)

if

If

the only remaining dispositive provisions of the

trust

governing instrument

then require distribution of the remaining property of the trust to 1 or more beneficiaries (whether outright, or to 1 or more other trusts which do have a serving trustee),

then

the taking beneficiaries of the trust, by unanimous

vote,

consent,

may name a successor trustee

or other officeholder

of the trust without the approval of the Court of Chancery. For purposes of

the preceding sentence,

this subsection,

the person entitled to

vote with respect to

consent on behalf of

a beneficiary

which

that

is another trust

which

that

has a serving trustee is the trustee or trustees of

such

the other

trust.

(d) If subsection (c) of this section does not apply, the current permissible beneficiaries and presumptive remainder beneficiaries of the trust, by unanimous consent, may name a successor trustee or other officeholder of the trust, subject to any conditions under the governing instrument with respect to such appointee, without the approval of the Court of Chancery.

(e) For purposes of subsections (c) and (d) of this section, unanimous consent may be achieved via representation by one or more designated representatives under § 3339 of this title or by one or more virtual representatives under § 3547 of this title.

(f) Except when a trustee vacancy is required by law to be filled, nothing in this section is to be construed to require a vacancy of a trustee or other officeholder to be filled when not expressly required by the governing instrument.

(g) Nothing in this section is to be construed to limit the appointment of a trustee or other officeholder by a modification of a trust under § 3342 of this title or by a nonjudicial settlement agreement under § 3338 of this title.

Section 5. Amend § 3341, Title 12 of the Delaware Code by making deletions as shown by strike through and insertions as shown by underline as follows:

§ 3341. Consequences of trust merger and similar transactions

.

Furthermore, all rights of creditors and all liens upon the property of the transferor trust shall be preserved unimpaired and all debts, liabilities, and duties of the transferor trust shall thenceforth attach to the transferee trust and may be enforced against the transferee trust to the same extent as if the transferor trust’s debts, liabilities, and duties had been incurred or contracted by the transferee trust. Except to the extent provided in paragraph (5) of this section, the terms of the governing instrument of

either the transferor trust or

the transferee

trust

trust, as selected in accordance with § 3325(29) of this title,

shall, following the merger, control the administration and disposition of the property of the transferee trust, including any such property obtained by the transferee trust by reason of the merger. Furthermore, any transaction in which all of the property of a trust is appointed or otherwise transferred to another trust or to the same trust as modified after such appointment, whether pursuant to § 3528 of this title, the terms of a governing instrument or otherwise, shall be treated as a merger within the meaning of this section with the appointing or transferring trust and the recipient trust treated as a transferor trust and transferee trust, respectively, for purposes of applying the provisions of this section to the transaction. This section is not intended, nor shall it be construed, to grant to any trustee a right or power to merge trusts but rather this section is intended only to describe certain consequences of a trust merger in cases where the merger is authorized by other applicable law. Except as expressly provided in clause (ii) of paragraph (4) of this section, this section is not intended, nor shall it be construed, to address the validity or effect of any instrument in writing, executed prior to a trust merger, purporting to exercise a power of appointment over property of any trust participating in a trust merger.

Section 6. Amend § 3345, Title 12 of the Delaware Code by making deletions as shown by strike through and insertions as shown by underline as follows:

§ 3345. Beneficiary well-being trust.

(c) The trustees

and advisers

of a beneficiary well-being trust shall provide

(or if applicable, the advisers shall direct the trustees to provide or shall consent to the trustees’ decision to provide)

the beneficiaries individually or as a group with beneficiary well-being programs at such times and in such manner as set forth in the provisions of the governing instrument, or in the absence of such provisions, then at such times and in such manner as the trustee

or adviser, as applicable,

may determine is appropriate, in accordance with § 3315 of this title.

(d) Subject to

the fiduciary duties and authority of the trustees and advisers under the governing instrument and applicable law,

applicable fiduciary duties,

the trustees

and advisers

of a beneficiary well-being trust shall pay

(or if applicable, the advisers shall direct the trustees to pay or shall consent to the trustees’ decision to pay)

from the trust the costs and expenses of beneficiary well-being programs.

(1) The payments under this subsection are an expense of administration of the trust to the extent permitted by law.

(2) A trustee itself may provide

(or if applicable, the advisers may direct the trustee to provide or may consent to the trustee’s decision to provide)

beneficiary well-being programs, and may select, hire, retain, and pay

(or if applicable, the advisers may direct the trustee to do so or may consent to the trustee’s decision to do so)

providers of beneficiary well-being programs whether or not the providers are third parties or affiliates of the trustee

or adviser

within the meaning of § 3312 of this title.

(3)

Each

If the governing instrument expressly so provides, each

provider of beneficiary well-being programs is entitled to payment for providing a beneficiary well-being program, and a trustee

(or if applicable, an adviser)

is entitled to the full

fiduciary

compensation to which the trustee

or adviser

is otherwise entitled as trustee

or adviser

without diminution for the fees and costs of the beneficiary well-being program, without prior notice or

prior

disclosure to any beneficiary of the trust.

Section 7. Amend § 504, Title 25 of the Delaware Code by making deletions as shown by strike through and insertions as shown by underline as follows:

§ 504. Certain powers of appointment.

(b) Subsection (a) of this section shall not apply to the exercise of a power of appointment (other than any such power of appointment created through the exercise of another power of appointment) over property held in a trust that is not subject to, or has an inclusion ratio of zero for purposes of, the tax on generation-skipping transfers imposed pursuant to Chapter 13 of the Internal Revenue Code (26 U.S.C. Ch. 13) or any successor provision thereto if the instrument of exercise of the power makes express reference to subsection (a) of this section and expressly states that subsection (a) of this section shall not apply to the exercise of the power or makes express reference to

§ 501

§ 501(a)

of this title and expressly states that

§ 501

§ 501(a)

of this title shall apply to the exercise of the power.

Section 8. This Act is effective upon enactment and applies to trusts whenever created.

SYNOPSIS

Section 1 of this Act amends § 3323 of Title 12 to clarify: (1) that powers vested in 2 fiduciaries or nonfiduciaries must be exercised by agreement of both (that is, unanimously), while actions of 3 or more fiduciaries must be exercised by a majority; and (2) how these rules also apply when fiduciaries or nonfiduciaries are designating 1 or more of them to perform ministerial functions on behalf of all of them. In particular, Section 1 of this Act clarifies that when 2 fiduciaries or nonfiduciaries are serving, they can designate 1 of them to perform ministerial functions on behalf of both of them—in other words, that the statute’s existing mention of such designation being available to a majority does not mean that it is available only when there are 3 or more fiduciaries or nonfiduciaries serving. Section 1 of the Act also clarifies (in subsection (a) of § 3323) that the non-liability of fiduciaries or nonfiduciaries who dissent from an action of the majority (if the dissent is evidenced in writing and delivered to the majority) applies only with respect to such action. Section 1 of the Act also reorganizes and rewords § 3323 to reflect current stylistic and formatting preferences.

Section 2 of this Act amends § 3325(29) of Title 12 to allow the trustee to select the governing instrument of either the transferor trust or the transferee trust (those two terms being defined in § 3341 of Title 12) in the context of a merger. The purpose of this amendment is to allow flexibility and improve administrative ease so that the name, EIN, account numbers, and other identifying information of the trust may remain unchanged post-merger.

Section 3 of this Act amends § 3326 of Title 12 to:

(1) Expand the definition of “officeholder” to include those who are empowered to appoint another officeholder;

(2) Add a cross-reference to new § 3327A of Title 12 so that the definition of “officeholder” in § 3326 will also apply to § 3327A; and

(3) Reorganize and reword § 3326 to reflect current stylistic and formatting preferences.

Section 4 of this Act amends Title 12 by moving the language of § 3336 of Title 12 to new § 3327A of Title 12 and by adding provisions to new § 3327A that expand the subject matter of § 3336. More specifically, new § 3327A:

(1) Replaces “trustee” with “officeholder” or “trustee or other officeholder” to parallel §§ 3326 and 3327 of Title 12, so that § 3327A will address the appointment of officeholders generally, and not just the appointment of trustees;

(2) For trusts that are not continuing (that is, for trusts to which § 3327A(a)(1) —the existing subject matter of § 3336—does apply), changes the current language so that the appointment mechanism to appoint a distributing trustee can also be used where needed to appoint an officeholder other than a trustee;

(3) For such distributing trusts, changes the current language so that the appointment of a distributing trustee or other officeholder is accomplished by unanimous consent, rather than by unanimous vote, because “vote” implies procedural formalities that ought not be necessary in such a situation;

(4) For trusts that are continuing (that is, for trusts to which § 3327A(a)(1) —the existing subject matter of § 3336—does not apply), creates a new procedure for the appointment of a trustee or other officeholder where there is a vacancy, without the approval of the Court of Chancery, by unanimous consent of certain beneficiaries, but subject to any restrictions that the governing instrument imposes on the appointee;

(5) Emphasizes that the unanimous consent required under § 3327A(c) and (d) may be achieved via representation by one or more designated representatives under § 3339 of Title 12 or by one or more virtual representatives under § 3547 of Title 12;

(6) Provides expressly that, subject to certain conditions, § 3327A also applies to the appointment of a trustee or other officeholder where another officeholder is supposed to fill a vacancy but has failed to do so within 60 days of being notified of the vacancy;

(7) Confirms that, unless a trustee vacancy is required by law to be filled, nothing within § 3327A shall be construed to require filling trustee or other officeholder vacancies when not expressly required by the trust’s governing instrument; and

(8) Confirms that nothing within § 3327A shall be construed to limit the appointment of a trustee or other officeholder by a modification of a trust under § 3342 of Title 12 or by a nonjudicial settlement agreement under § 3338 of Title 12.

Section 5 of this Act amends § 3341 of Title 12 to allow the trustee to select the governing instrument of either the transferor trust or the transferee trust in the context of a merger in order to align with the amendment made in Section 2 of this Act.

Section 6 of this Act amends § 3345 of Title 12 to include references to both the trustee or adviser of a trust, in each place in the statute where only the trustee was formerly referenced, to avoid any potential ambiguity about the statute’s application to beneficiary well-being trusts that are drafted to provide that the trustee shall provide beneficiary well-being programs at the direction of or with the consent of an adviser. Section 6 of this Act also shortens the first sentence of § 3345(d) of Title 12—the original introductory sentence was intended to convey that the statute is applicable where the trustee is directed by an adviser, but this introductory sentence is no longer necessary in light of the other changes to this statute that more directly spell out the dynamic of a directed trust. It is noted for the sake of clarity, however, that this shortening of the first sentence of § 3345(d) of Title 12 does not change that actions taken under § 3345(d) remain subject to applicable fiduciary duties. Section 6 of this Act also clarifies § 3345(d)(3) of Title 12 that payment for beneficiary well-being programs to a trustee or affiliate or adviser is permitted only if the governing instrument expressly authorizes such payment. Section 6 of this act also amends § 3345(d)(3) of Title 12 by deleting the word “fiduciary” as modifying the term “compensation” to reflect that some advisers who are not fiduciaries may receive compensation (and not to have any effect on whether a trustee or adviser is or is not a fiduciary). Section 6 of this Act also adds the word “prior” before the word “disclosure” in the last clause of § 3345(d)(3) of Title 12 to clarify that payment for beneficiary well-being programs to a trustee or affiliate or adviser is permitted without prior notice or prior disclosure to any beneficiary of the trust.

Section 7 of this Act amends § 504 of Title 25 to coordinate one of the methods for opting out of the effect of § 504(a) upon the exercise of a power of appointment. The amendment is that the instrument of exercise of a power of appointment should make express reference to the provisions of § 501(a) of Title 25 and should expressly state that it shall not apply to the exercise of the power in order to effectuate the opt-out of § 504(a). This change replaces the prior provision that referred generally to § 501, rather than specifically to § 501(a).

Section 8 of this Act provides an effective date.