2021 Colorado Code
Title 15 - Probate, Trusts, and Fiduciaries
Article 16 - Trust Administration
Part 9 - Colorado Uniform Trust Decanting Act
§ 15-16-922. Saving Provision
- If exercise of the decanting power would be effective under this part 9 except that the second-trust instrument in part does not comply with this part 9, the exercise of the power is effective and the following rules apply with respect to the principal of the second trust attributable to the exercise of the power:
- A provision in the second-trust instrument which is not permitted under this part 9 is void to the extent necessary to comply with this part 9.
- A provision required by this part 9 to be in the second-trust instrument which is not contained in the instrument is deemed to be included in the instrument to the extent necessary to comply with this part 9.
- If a trustee or other fiduciary of a second trust determines that subsection (1) of this section applies to a prior exercise of the decanting power, the fiduciary shall take corrective action consistent with the fiduciary's duties.
History. Source: L. 2016: Entire part added,(SB 16-085), ch. 228, p. 888, § 1, effective August 10.
COMMENT
In order to provide as much certainty as possible to the trustee and the beneficiaries with respect to the operative terms of a trust, an exercise of a decanting power should not be wholly invalid because the second-trust instrument in part violates this act. Section 15-16-922(1) modifies the second-trust instrument to delete impermissible provisions in the second-trust instrument and to insert required provisions in the second-trust instrument. For example, if the second trust sets forth an impermissible rule against perpetuities period (see Section 15-16-920 ), the other modifications made by the decanting should be effective.
The remedial rules of Section 15-16-922 apply only to the least extent required to comply with this act. Thus if a provision in the second-trust instrument would be permissible with respect to some of the trust property but is impermissible with respect to other trust property, such provision will be void only as to the trust property with respect to which it is impermissible. Further, any modification to a provision of the second-trust instrument that is required by Section 15-16-922 should be the modification that implements the intended modifications to the greatest extent permitted under the act. Thus the authorized fiduciary's intent is relevant in determining how to apply the provisions of Section 15-16-922.
For example, assume a trust holds $500,000 of marketable assets and is the beneficiary of Grantor's $100,000 IRA. Grantor's Child is the sole current beneficiary of the trust. The trust is qualified to use Child's life expectancy in determining the distribution period for the IRA because the trust restricts all future beneficiaries, including appointees under any power of appointment and takers in default, to individuals younger than Child. The authorized fiduciary attempts to decant the trust to permit Child to appoint to her spouse. This is in violation of Section 15-16-919(2)(f) because if Child could appoint the IRA to a spouse who is older than Child, Trust would not have qualified to take IRA distributions over Child's life expectancy. Section 15- 16-919(2)(f) causes the qualified benefit property and any reinvested distributions of the qualified benefit property to be treated as a separate share. Section 15-16-922 will void the power to appoint to a spouse only with respect to the qualified benefit property and any reinvested distributions of the qualified benefit property, and only if the spouse is (or could be) older than Child, because that is the least intrusive remediation required to comply with Section 15-16-919(2)(f) .
As another example, assume the authorized fiduciary attempts to decant a trust to permit Child to appoint to her sibling. If Child's sibling is older than Child, this is in violation of Section 15-16-919(2)(f) because if Child could appoint the IRA to her older sibling, the trust would not have qualified to take IRA distributions over Child's life expectancy. Section 15-16-919(2)(f) causes the qualified benefit property and any reinvested distributions of the qualified benefit property to be treated as a separate share. Section 15-16-922 will void the power to appoint to a sibling only with respect to the qualified benefit property and any reinvested distributions of the qualified benefit property, which are treated as a separate share, and only if the sibling is older than Child, because that is the least intrusive remediation required to comply with Section 15-16-919(2)(f).
As yet another example, assume the authorized fiduciary attempts to decant Trust to change (1) the successor fiduciaries, (2) the manner in which the first trust instrument directed that the authorized fiduciary be compensated, which will increase the authorized fiduciary's compensation, and (3) the identity of the person who can remove the authorized fiduciary (the “Remover”). The authorized fiduciary obtains the written consent of the qualified beneficiaries of the second trust, but does not obtain consent of the Remover or approval by the court. The changes to the successor fiduciaries will be effective. The change to the authorized fiduciary's compensation will also be effective because the requirement in Section 15-16-916(1) or Section 15-16-916(2) was met. The change to the identity of the Remover will not be effective because the Remover named in the first trust instrument did not consent. See Section 15-16-918 .
Section 15-16-922(2) provides that if the savings provision in Section 15-16-922(1) applies, the trustee or other fiduciary shall take corrective action consistent with the fiduciary's duties. When Section 15-16-922(1) applies, the copy of the second-trust instrument provided to qualified beneficiaries and other parties under Section 15-16-907 would not accurately state the terms of the second trust. A trustee or other fiduciary may have a duty to notify certain persons of the accurate terms of the second trust. See, for example, Section 813(a) of the Uniform Trust Code imposing a duty on the trustee to keep the qualified beneficiaries reasonably informed about the administration of the trust and the material facts necessary for them to protect their interests.
Additional corrective action may be required, especially if distributions were made or not made in reliance on the assumed terms of the second-trust instrument and such terms are altered by Section 15-16-922(1) .
Where a fiduciary is uncertain about whether corrective action should be taken, the fiduciary may apply to the court for instructions under Section 15-16-909 .
