SENATE BILL NO. 577
AN ACT AMENDING TITLE 5, CHAPTER 9, TITLE 12, CHAPTERS 2, 13, 15, 33 AND 35, AND TILE 25, CHAPTER 5; AND INSERTING A NEW CHAPTER 34 OF TITLE 12 OF THE DELAWARE CODE BY REVISING AND ENACTING CERTAIN LAWS RELATING TO BANKS AND TRUST COMPANIES AS FIDUCIARIES, AND TO THE ADMINISTRATION OF ESTATES AND TRUSTS.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE:
Section 1. Amend Title 5, Chapter 9, of the Delaware Code by adding thereto new Sections 938 and 939 to read as follows:
"Section 938. Transfer of Fiduciary Accounts
(a) For purposes of this section, 'fiduciary' shall mean a banking organization or trust company acting as a trustee, personal representative, guardian or custodian under a Uniform Gifts to Minors Act or any comparable act.
(b) The term 'Interested person' means any living person who: (i) is an Income beneficiary or vested remainderman of a trust, (ii) has a vested interest in a decedent's estate, (iii) receives benefits as a ward from a guardianship account, or (iv) is the minor with respect to an account established under a Uniform Gifts to Minors Act or a comparable act.
(c) With the prior written approval of. and in accordance with the terms and conditions of transfer prescribed by, the office of the State Bank Commissioner, and upon completion of the notice procedure of subsection (d), a banking organization, trust company, or a bank holding company having its principal place of business in this State may transfer one or more of the fiduciary accounts administered by such banking organization, trust company, or one or more of the banking organizations or trust companies controlled by such bank holding company to another banking organization or trust company controlled by such banking organization or bank holding company.
(d) Prior to effecting a transfer of one or more fiduciary accounts under subsection (c) of this section, the fiduciary shall send written notice of such transfer to all interested persons or their legal or natural guardians. If the persons, or their legal or natural guardians In the case of minorchIldren or Incompetents, to whom such notice was sent do not make written objections to the fiduciary of the account within thirty (30) days of the date such notice was mailed, then the fiduciary may complete the transfer of the account.
(e) If a fiduciary completes a transfer as described in the preceding subsections, the banking organization or trust company to which such fiduciary accounts have been transferred shall automatically be substituted as a fiduciary of all the accounts so transferred without further action and without any order or decree of any court or public officer, and such transferee banking organization or trust company shall have all the rights, duties, responsibilities, obligations and liabilities, financial or otherwise, of such transferring fiduciary with respect to such accounts. Likewise, a fiduciary which completes a transfer of one or more accounts as described in the preceding subsections shall be removed as fiduciary of all such accounts without an accounting and without any order or decree of any court or public officer, and prospectively such fiduciary shall have no continuing duties, responsibilities, obligations or liabilities, financial or otherwise, with respect to the accounts so transferred. Such transfer shall not relieve a fiduciary of any liability it may have incurred for its action or inaction prior to the transfer.
Section 939. Negotiable instruments
(a) For purposes of this section, 'fiduciary' shall have the same meaning as in section 3301(b) of Title 12 of this Code.
(b) If a negotiable instrument is drawn upon the account of a principal in a bank by a fiduciary who is empowered to draw upon the principal's account, the bank is authorized to pay such instrument without being liable to the principal for the application of the funds.
(c) If any negotiable Instrument payable or endorsed to a fiduciary as such Is endorsed by a fiduciary, or if any negotiable Instrument payable or endorsed to a principal is endorsed by a fiduciary empowered to endorse such instrument on behalf of the principal, the endorsee is not bound to inquire whether the fiduciary is committing a breach• of its obligation as fiduciary by endorsing or delivering the instrument, and is not liable for the application of the funds."
Section 2. Amend Chapter 2, Title 12 of the Delaware Code by striking Section 213 in its entirety
and inserting in lieu thereof a new Section 213 to read as follows:
"Section 213. Rules for Construction or Interpretation of Will or Trust
In the construction or interpretation of any will or trust, the following rules shall apply in the absence of any contrary expression of intent in such will or trust:
(1) The period of time during which an interest in trust is revocable pursuant to the uncontrolled volition of the person having such a power of revocation shall not be included in determining whether the trust is invalid under the rule against perpetuitites.
(2) There shall be no presumption that a testator or trustor did or did not intend that any law apply to a will or trust which was not in effect on the date of execution of such will or trust instrument.
(3) Except where the will or trust Instrument expressly provides to the contrary, the determination of a class shall be governed by the law in effect on the date the will or trust instrument becomes irrevocable."
Section 3. Amend Chapter 13, Title 12 of the Delaware Code by striking subsections (a) and (c) of Section 1307 in their entirety and inserting in lieu thereof new subsections (a) and (c) of Section 1307 to read as follows:
"1307. Will of Non-Domiciliary; Admission, Recording and Evidence
(a) The written will of a testator who died domiciled outside this State, but who owned real estate or personal property located in this State, may be admitted to probate and recorded in this State. If such will has been admitted to probate in the domiciliary jurisdiction, such admission and recording shall be accomplished by filing a verified copy of the will and a verified copy of the record admitting the same to probate as hereinafter provided. If such will has not been admitted to probate in the domiciliary jurisdiction, but has not been rejected from probate in the domiciliary jurisdiction except for a cause which is not grounds for rejection of a will of a testator who died domiciled in this State, and is valid under the laws of this State, such admission and recording shall be accomplished by proving such will in according with Sections 1302 through 1305 of this chapter. In either case, such will shall then have the same force and effect as if originally proved and allowed in this State.
(c) The will or a verified copy of it, and any verified copy of the record admitting the will to probate, shall be recorded in the office of the Register of Wills of any county where real estate or personal property of the testator is located, and the record, or an office copy thereof, shall be sufficient evidence. When the will or a verified copy of it, or any verified copy of the record admitting the will to probate, is given in evidence, the Court of Chancery, on the application of the adverse party, may order it to be deposited and retained in the office of the Register of the county, and in that case an office copy thereof shall be sufficient evidence."
Section 4. Amend Chapter 15, Title 12 of the Delaware Code by striking Section 1502 in its entirety and inserting in lieu thereof a new Section 1502 to read as follows:
§1502. Grant of Letters Testamentary
If a will of a domiciliary or nondomiciliary decedent is admitted to probate in accordance with this title, letters testamentary shall be granted by the Register of Wills of the county in which the decedent was domiciled, or in the case of a nondomicillary in which the decedent owned real or personal property, to the executor or executors thereof, upon their giving bond in accordance with this title.
If several are named as executors, and any are deceased, or fail to give the necessary bond, or renounce or are incapacitated, letters testamentary shall be granted to the others so named. If all of them, or a sole executor, is deceased, or fails to give the necessary bond, or renounces or is incapacitated, administration with the will annexed, shall be granted in accordance with this title."
Section 5 Amend Chapter 33, Title 12 of the Delaware Code by striking Section 3302 In its entirety and inserting in lieu thereof a new Section 3302 and adding new Sections 3312 and 3313 to read as follows: "3302. Degree of Care• Authorized Investments
(a) When investing, reinvesting, purchasing, acquiring, exchanging, retaining, selling and managing property for the benefit of another, a fiduciary shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in a like capacity and familiar with such matters would use to attain the purposes of the account. In making investment decisions a fiduciary may consider the general economic conditions, the anticipated tax consequences of the investment and the anticipated duration of the account and the needs of its beneficiaries.
(b) Within the limitations of the foregoing standard and considering individual investments as part of an overall investment strategy, a fiduciary is authorized to acquire every kind of property, real, personal or mixed, and every kind of investment, wherever located, whether within or without the United States, including, but not by way of limitation, bonds, debentures and other corporate obligations, stocks, preferred or common, shares or interests in common funds or common trust funds, securities of any open end or closed-end management type investment company or investment trust registered under the Federal Investment Company Act of 1940 (15 U.S.C. §80a. 1 et seq.). options, futures, warrants, limited partnership interests, and life insurance. No investment made by a fiduciary shall be deemed imprudent solely because the investment is not specifically mentioned in this subsection (b).
(c) The propriety of an investment decision is to be determined by what the fiduciary knew or should have known at the time of the decision about the inherent nature and expected performance of the investment, the attributes of the portfolio, the general economy, and the needs and objectives of the beneficiaries of the account as they existed at the time of the decision. Any determination of liability for investment performance shall consider not only the performance of a particular investment, but also the performance of the portfolio as a whole.
(d) Any fiduciary acting under a governing instrument shall not be liable to anyone whose interests arise from that instrument for the fiduciary's good faith reliance on the express provisions of such instrument. The standards set forth in this section may be expanded, restricted or eliminated by express provisions in a governing instrument.
(e) Where a bank or trust company acting in a fiduciary capacity invests trust funds In, or otherwise acquires an interest in, a common trust fund which it or one of its affiliates manages, as defined 111 §23 A of the Federal Reserve Act (12 U.S.C. §371c), the plan for such common trust fund shall be filed and recorded in the office of the Register in Chancery of the county in which is located the main office in Delaware of the bank or trust company which is the fiduciary for such trust funds.
(f) Fees may be charged for making an investment through a computerized or automated process, such as sweeping otherwise uninvested cash into a cash management vehicle, provided that the amount of such fees is disclosed on a continuing basis as a separate item on the regular periodic statements furnished to the beneficiaries of the account.
§3312. Investments in Mutual Funds and Investment Trusts
(a) Any person, including a bank or trust company, authorized to act in a fiduciary capacity or in the capacity of agent with investment discretion may invest funds held by said person for investment in a limited partnership, joint venture, or an open-end or closed-end management type investment company or investment trust registered under the Investment Company Act of 1940 (15 U.S.C. §80a. I et seq.), notwithstanding that such person or an affiliate of such person acts or has acted as adviser, administrator, distributor, underwriter or in any other capacity in which it receives or has received a fee from such limited partnership, joint venture, investment company or investment trust.
(b) After disclosing to all current income beneficiaries of an account for which a bank or trust company serves as fiduciary the full amount of fees or commissions received or to be received by such bank or trust company, or affiliate of such bank or trust company, from a limited partnership, joint venture, or an open- end or closed- end investment company or investment trust for which such bank, trust company, or affiliate acts as adviser, administrator, distributor or underwriter, and after receiving such income beneficiaries' written consent to the use of such limited partnership, joint venture, Investment company or investment trust in such account, such bank or trust company may receive fiduciary fees or commissions from such account invested in such limited partnership, joint venture, investment company or investment trust at the same rate such bank or trust company would be entitled to receive them if such account were otherwise invested.
§3313. Investment Advisers
Where one or more persons are given authority by the terms of a governing instrument to direct, consent to, or disapprove a fiduciary's investment decisions, or proposed investment decisions, such persons shall be considered to be fiduciaries when exercising such authority unless the governing instrument provides otherwise. Any fiduciary acting in compliance with such an authorized direction or disapproval shall not be liable individually or as a fiduciary for any loss resulting from an action taken or omitted by reason of such compliance."
Section 6. A new Chapter 34 is hereby added to Title l2 to read as follows: "Chapter 34. Administrative Provisions
§3401. Application of Chapter; Definitions
(a) This chapter shall govern fiduciaries, as well as agents in certain instances, acting under governing instruments.
(b) All definitions contained in Section 3301 of this title shalt apply to this chapter.
(c) For purposes of construing a governing instrument, unless a contrary statement appears in such governing instrument: (i) the term "issue" shall denote a distribution per stirpes, such that the children of the person whose issue is referred to shall be taken to be the heads of the respective stocks of issue; and (II) a person legally adopted, whether under or over the age of eighteen years at adoption, shall thereafter be considered to be a child and issue of the adopting person and an Issue of the ascendants of the adopting person, and the issue of the person so adopted shall be considered to be issue of the adopting person and his or her ascendants.
(d) The term 'interested persons' means any living person who: (i) is an income beneficiary or remainderman of a trust; (ii) has a vested interest in a decedent's estate, (iii) receives benefits as a ward from a guardianship account, or (iv) is the minor with respect to an account established under a Uniform Gifts to Minors Act.
(c) The term 'fiduciary fund' means the trust, estate, guardianship account or account established under a Uniform Gifts to Minors Act which is being administered by a fiduciary.
§3402. Fiduciary Agency Contracts
A fiduciary acting under a governing instrument which neither affirmatively permits the fiduciary to hire agents, nor expressly prohibits the fiduciary from hiring agents, may employ agents and pay them from the fiduciary fund in accordance with this section. Such agents may be hired to assist in the performance of such fiduciary's administrative duties, whether discretionary or ministerial, or to render investment advice, if the fiduciary reasonably believes in the exercise of its discretion that such an arrangement is in the best interests of all interested persons and will improve the investment performance or the efficiency of the administration of the fiduciary fund. The agent must observe the same standard of care required of the fiduciary with respect to each responsibility so delegated, and neither the establishment of such agency relationship nor the performance of such agent shall diminish, increase or otherwise affect the standard by which the performance of the fiduciary is governed. In any suit or proceeding involving an evaluation of fiduciary performance, the fiduciary shall be liable for abusing its discretion in hiring such agent, (or negligently hiring such agent, or for negligently continuing the agency relationship, and the performance of such agent shall be deemed that of the fiduciary.
(a) Unless provided otherwise by the governing instrument, any power vested in three or more fiduciaries may be exercised by a majority of such fiduciaries and a majority of fiduciaries named in a governing instrument may designate one of such fiduciaries to perform ministerial functions on behalf of all such fiduciaries. A fiduciary 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, if such dissent is evidenced by a writing delivered to the majority of the fiduciaries.
(b) This section does not excuse a co-fiduciary from liability for failure to participate in the administration of the fiduciary fund or for failure to attempt to prevent a breach of trust, or for failure to seek advice and guidance from the Court in a recurring situation, unless otherwise expressly provided by the governing instrument.
Section 7. Chapter 35 of Title 12 is hereby amended by adding new Sections 3542. 3543, and 3544 to read as follows:
"§3542. Termination of Small Trusts
(a) Unless otherwise provided by the terms of the trust instrument, and subject to the provisions of the other subsections of this section. a corporate trustee of a trust who finds that the costs of administration thereof arc such that the continuance of the trust would defeat or substantially impair the purpose of the trust, may. after written notice to all interested persons, or their legal or natural guardians. terminate the trust and distribute the trust property to one or more of the beneficiaries in the trustee's discretion. No court proceedings or approval is required to effect such a termination.
(b) Any interested person shall have 30 days after receiving written notice in accordance with this section to object to the termination or plan of distribution in writing to such trustee. If the trustee has received no written objection to the proposed termination or plan of distribution within such 30 day period, it may proceed to terminate the trust.
A trustee which receives a written objection to the proposed plan of distribution of a trust within 30 days of the last day on which any interested person received written notice may reformulate the proposed plan of distribution and renotify all intecested persons of its intentions. Such renotification shall begin again the 30 day period referred to in subsection (b) of this section.
(c) A trustee which receives a written objection to the termination or plan of distribution of a trust within 30 days of the last day on which any interested person received written notice may proceed to terminate the trust in accordance with the plan of distribution, without court proceeding or approval, notwithstanding the objection, provided that all interested persons have been further notified in writing of such objection, of the trustee's intention to proceed to terminate such trust notwithstanding such objection, and of their right to petition the Court to prevent the terminationor modify the plan of distribution within six months from the mailing of such further notice, and provided that at least six months have elapsed since such further notice was sent by the trustee, or the trustee has received a written waiver of the right to petition the Court from all interested persons.
(d) Any interested person, within six months of the mailing of such further notice of the Trustee's intention to proceed with termination, notwithstanding an objection, may petition the Court to prevent such termination or modify the plan of distribution, or may send to the trustee a written waiver of such right to petition.
(e) The written notice required by this section shall state: (I) that the trustee intends to terminate the trust in accordance with this section. (2) the plan of distribution, (3) that any interested person may object to such termination or plan of distribution in a writing received by the trustee within 30 days of receipt of such notice by such interested person, and (4) that the trustee may proceed to terminate the trust, notwithstanding any objection to such termination or plan of distribution, six months after the trustee further notifies all interested persons of such objection and its intention to proceed with the termination notwithstanding such objection; provided. that such notice shall inform interested persons that application may be made to the Court of Chancery to prevent the proposed termination.
(f) For purposes of this section, the term "interested person" means any living person or existing organization who is a current Income beneficiary, or who would be a vested remainderman of the trust if the trust were to terminate at the time of the notification, and the Delaware Attorney General in the case of a charitable trust.
(g) The existence of spendthrift or similar protective provisions in a trust shall not make this Section inapplicable.
§3543. Distribution of Estate Assets Without Creation of Trust
If the terms of a will provide for the establishment of a trust aU the assets of which, due to the circumstances existing at the time the trust is to be established, arc required to be distributed to the trust's beneficiary or beneficiaries immediately, the executor is authorized to make distribution directly to the beneficiary or beneficiaries of the trust, rather than to the trustee. without the necessity of a court petition. The receipts of such beneficiaries shall protect the executor to the same extent as the receipt of the trustee.
§3544. Successor Trustees
Unless provided otherwise by the terms of a governing instrument or by order of Court, a successor trustee appointed in accordance with the terms of a governing instrument or by the Court shall not be required to look Into the acts of its predecessor trustee, shall have responsibility only for property which is actually delivered to it by its predecessor, and shall have all of the powers and discretion conferred in the governing instrument upon the original trustee."
Section 8. Amend Chapter 5, Title 25 of the Delaware Code by striking Section 503 in Its entirety and substituting in lieu thereof a new Section 503, to read as follows:
"§503. Rule Agairut Perpetuities
(a) No interest created in real or personal property held in trust shall be void by reason of the common law rule against perpetuities.
(b) In this State, the rule against perpetuities for property held in trust is that at the expiration of one hundred ten (110) years from the datc on which any trust became irrevocable by the trustor, such trust, if not already terminated by its terms. shalt terminate. This rule is subject to Sections 501 and 502 of this Chapter and shall not apply to
(I) A trust for the benefit of one or more charitable organizations as described In Sections 170 (c), 2055 (a) and 2522 (a) of the United States Internal Revenue Code of 1954, or under any similar statute, or
(2) A trust created by an employer as part of a stock bonus plan, pension plan, disability or death benefit plan, or profit-sharing plan, for the exclusive benefit of some or all of its employees, to which contributions are made by such employer or employees, or both, for the purpose of distributing to such employees the earnings or the principal, or both earnings and principal, of the fund held in trust, or
(3) A business trust formed under Chapter 18 of Title 6 of this Code for which a certificate of business trust is on file in the Office of the Secretary of State and with the Register in Chancery of each County within the State in which such business trust has a place of business or in which a trustee Is domiciled or has a principal place of business.
(c) Upon the termination of a trust as a result of the operation of the provisions of the preceding subsection (b) of this Section, the trust's assets shall be immediately distributed in accordance with the provisions of the trust instrument regarding distribution upon termination of the trust, or if no such provisions exist, to the persons then entitled to receive the income of the trust in proportion to the amount of the income so receivable by such beneficiaries, or in equal shares if specific proportions are not specified in the trust instrument. In the event that the trust instrument does not provide for distribution upon termination and there are no income beneficiaries of the trust, the trust assets shall be distributed to such then- living persons who are then determined to be the trustor's distributees by the application of the intestacy laws of this State then in effect governing the distribution of intestate real or personal property as though the trustor or testator had died at that particular time, intestate, a resident of this State, and owning the property so distributable.
(d) For purposes of this rule against perpetuities, trusts created by the exercise of a power of appointment, whether limited or general, and whether by will, deed or other Instrument, shall be deemed to have become Irrevocable by the trustor on the date on which such exercise became irrevocable. Donors, not donees, of limited powers of appointment, and donecs exercising, not donors of. general power of appointment, shall be deemed the trustors for purposes of distributions to the trustor's or testator's distributees pursuant to Subsection (c) of this section."
Section 9. The Act with respect to Sections 938 and 939 of Title 5 shall be effective upon enactment.
The Act with respect to Section 213 of Tile 12 shall apply to wills of decedents dying on or after August 1, 1984, and to trusts becoming irrevocable, whether by the terms of the trust instrument, the death of a person having a power of revocation, or otherwise, on or after August 1, 1984.
The Act with respect to Section 1307 of Title 12 shall be effcctivc for all wills admitted to probate after enactment of this Act.
The Act with respect to Section 1502 of Title 12 shall be effective upon enactment with respect to estates of decedents dying on or after enactment of this Act.
The Act will respect to Sections 3302, 3312, 3313, 3401, 3402, 3542, and 3543 of Title 12 shall be effective with respect to actions taken by fiduciaries after enactment of this Act.
The Act with respect to Section 3403 of Title 12 shall apply to governing instruments becoming irrevocable on or after enactment of this Act.
The Act with respect to Section 3544 of Title 12 shall be effcctivc upon enactment.
The Act with respect to Section 503 of Title 25 shall be effective with respect to interests created on or after enactment of this Act.
Approved July 3, 1986.