2010 Pennsylvania Code
Title 20 - DECEDENTS, ESTATES AND FIDUCIARIES
Chapter 75 - Limitations on Exercise of Trustee Powers and Powers of Beneficiaries to Appoint Trustees
of Beneficiaries to Appoint Trustees -

                                CHAPTER 75
                LIMITATIONS ON EXERCISE OF TRUSTEE POWERS
             AND POWERS OF BENEFICIARIES TO APPOINT TRUSTEES

     Sec.
     7501.  Legislative intent.
     7502.  Definitions.
     7503.  Application of chapter.
     7504.  Certain trustee powers not exercisable.
     7505.  Joint powers and appointment of nondisqualified
            substituted trustees.
     7506.  Certain powers of beneficiaries not exercisable.

        Enactment.  Chapter 75 was added December 21, 1998, P.L.1067,
     No.141, effective immediately.
     § 7501.  Legislative intent.
        This chapter is enacted to codify, clarify and confirm
     certain existing common law principles of fiduciary and trust
     law relating to conflicts of interest on the part of trustees.
     § 7502.  Definitions.
        The following words and phrases when used in this chapter
     shall have the meanings given to them in this section unless the
     context clearly indicates otherwise:
        "Interested party."  Each trustee then serving and each
     person having an interest in income or principal whom it would
     be necessary to join as a party in a proceeding for the judicial
     settlement of a trustee's account. The term "interested party"
     does not include a person who has not attained majority or is
     otherwise incapacitated unless a court has appointed a guardian
     for the person for some purpose other than acting under section
     7503 (relating to application of chapter) or an agent has been
     appointed under a durable power of attorney that is sufficient
     to grant authority to act under section 7503.
     § 7503.  Application of chapter.
        (a)  General rule.--This chapter shall apply to:
            (1)  Any trust created under a governing instrument
        executed on or after March 21, 1999, unless the governing
        instrument expressly provides that this chapter does not
        apply.
            (2)  Any trust created under a governing instrument
        executed before March 21, 1999, unless all interested parties
        affirmatively elect on or before December 21, 2001, by a
        written declaration signed by or on behalf of each interested
        party and delivered to the trustee, not to be subject to the
        application of this chapter. In the case of a testamentary
        trust, the declarations shall be filed with the register in
        the county in which the will was admitted to probate.
        (b)  Exclusion.--This chapter shall not apply to:
            (1)  Any trust during the time that the trust is
        revocable or amendable by its settlor.
            (2)  A spouse of a decedent or settlor where the spouse
        is the trustee of a testamentary or inter vivos trust for
        which a marital deduction has been allowed.
            (3)  (Deleted by amendment).
            (4)  A trust under a governing instrument that by
        specific reference expressly rejects the application of this
        chapter.
            (5)  (Deleted by amendment).
     (July 7, 2006, P.L.625, No.98, eff. 60 days)

        2006 Amendment.  Act 98 amended subsec. (b).
        Cross References.  Section 7503 is referred to in section
     7502 of this title.
     § 7504.  Certain trustee powers not exercisable.
        (a)  General rule.--The following powers conferred by a
     governing instrument upon a trustee in his or her capacity as a
     trustee shall not be exercised by that trustee:
            (1)  The power to make discretionary distributions of
        either principal or income to or for the benefit of the
        trustee, the trustee's estate or the creditors of either
        unless the power is either:
                (i)  limited by an ascertainable standard relating to
            the trustee's health, education, support or maintenance
            within the meaning of 26 U.S.C. §§ 2041 (relating to
            powers of appointment) and 2514 (relating to powers of
            appointment); or
                (ii)  exercisable by the trustee only in conjunction
            with another person having a substantial interest in the
            property subject to the power which is adverse to the
            interest of the trustee within the meaning of 26 U.S.C. §
            2041(b)(1)(C)(ii).
            (2)  The power to make discretionary distributions of
        either principal or income to satisfy any of the trustee's
        personal legal obligations for support or other purposes.
            (3)  The power to make discretionary allocations in the
        trustee's personal favor of receipts or expenses as between
        income and principal unless the trustee has no power to
        enlarge or shift any beneficial interest except as an
        incidental consequence of the discharge of the trustee's
        fiduciary duties.
            (4)  The power to exercise any of the powers proscribed
        in this subsection with regard to an individual other than
        the trustee to the extent that the individual could exercise
        a similar prohibited power in connection with a trust that
        benefits the trustee.
        (b)  Limited exercise of prohibited power.--
            (1)  If a trustee is prohibited by subsection (a)(1) from
        exercising a power conferred upon the trustee, the trustee
        nevertheless may exercise that power but shall be limited to
        distributions for the trustee's health, education, support or
        maintenance to the extent otherwise permitted by the terms of
        the trust.
            (2)  Unless otherwise prohibited by the provisions of
        this section, a trustee may exercise a power described herein
        in favor of someone other than the trustee, the trustee's
        estate or the creditors of either.
        (c)  Exceptions.--This section shall not apply to:
            (1)  A trustee who possesses in his individual capacity
        an unlimited right to withdraw the entire principal of the
        trust or has a general testamentary power of appointment over
        the entire principal of the trust.
            (2)  A trust created under a governing instrument
        executed on or before March 21, 1999, if no part of the
        principal of the trust would have been included in the gross
        estate of the trustee for Federal estate tax purposes if the
        trustee had died on March 21, 1999, without having exercised
        the power under the governing instrument to make
        discretionary distributions of principal or income to or for
        the benefit of the trustee, the trustee's estate or the
        creditors of either.
     (July 7, 2006, P.L.625, No.98, eff. 60 days)

        2006 Amendment.  Act 98 added subsec. (c).
        Cross References.  Section 7504 is referred to in section
     7505 of this title.
     § 7505.  Joint powers and appointment of nondisqualified
                substituted trustees.
        If a governing instrument contains a power proscribed under
     section 7504 (relating to certain trustee powers not
     exercisable), the following shall apply:
            (1)  If the power is conferred on two or more trustees,
        it may be exercised by the trustee or trustees who are not so
        prohibited as if they were the only trustee or trustees.
            (2)  If there is no trustee in office who can exercise
        the power as provided in paragraph (1), the court, upon
        petition and hearing after such notice as it may direct,
        shall appoint a trustee who is not disqualified and whose
        term in office shall be as the court directs for the sole
        purpose of exercising the powers that the other trustees
        cannot exercise.
     § 7506.  Certain powers of beneficiaries not exercisable.
        (a)  General rule.--No beneficiary of a trust in an
     individual, trustee or other capacity may appoint himself or
     herself as trustee or remove a trustee and appoint in place of
     the trustee so removed a trustee who is related or subordinate
     to the beneficiary within the meaning of section 672(c) of the
     Internal Revenue Code of 1986 (Public Law 99-514, 26 U.S.C. §
     672(c)) in each case unless:
            (1)  the trustee's discretionary power to make
        distributions to or for the beneficiary is limited by an
        ascertainable standard relating to the beneficiary's health,
        education, support or maintenance within the meaning of
        sections 2041 and 2514 of the Internal Revenue Code of 1986
        (26 U.S.C. §§ 2041 and 2514);
            (2)  the trustee's discretionary power may not be
        exercised to satisfy any of the beneficiary's legal
        obligations for support or other purposes; and
            (3)  the trustee's discretionary power may not be
        exercised to grant to the beneficiary a general power to
        appoint property of the trust to the beneficiary, the
        beneficiary's estate or the creditors of either within the
        meaning of section 2041 of the Internal Revenue Code of 1986
        (26 U.S.C. § 2041).
        (b)  Exceptions.--This section shall not apply:
            (1)  if the appointment of the trustee by the beneficiary
        may be made only in conjunction with another person having a
        substantial interest in the property of the trust subject to
        the power which is adverse to the exercise of the power in
        favor of the beneficiary within the meaning of section
        2041(b)(1)(C)(ii) of the Internal Revenue Code of 1986 (26
        U.S.C. § 2041(b)(1)(C)(ii)) or the appointment is in
        conformity with a procedure governing appointments approved
        by the court before December 21, 1998;
            (2)  to any beneficiary who possesses in an individual
        capacity an unlimited right to withdraw the entire principal
        of the trust or has a general testamentary power of
        appointment over the entire principal of the trust; or
            (3)  to a trust created under a governing instrument
        executed on or before March 21, 1999, if no part of the
        principal of the trust would have been included in the gross
        estate of the beneficiary for Federal estate tax purposes if
        the beneficiary had died on March 21, 1999.
     (July 7, 2006, P.L.625, No.98, eff. 60 days)