CHAPTER 343

FORMERLY

HOUSE BILL NO. 747

AN ACT TO AMEND TITLE 12, DELAWARE CODE, RELATING TO QUALIFIED DISPOSITIONS IN TRUST.

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

Section 1. Amend § 3570(4), Title 12, Delaware Code, by striking the period "." at the end thereof and by inserting therein, following the word "trustee", the phrase "or trustees, but shall not include the release or relinquishment of an interest in property that theretofore was the subject of a qualified disposition."

Section 2. Amend § 3570(6), Title 12, Delaware Code, by inserting the word "qualified" prior to the word "trustee" and by inserting the phrase "or qualified trustees" following the word "trustee".

Section 3. Amend § 3570(7), Title 12, Delaware Code, by striking the word "or where it first appears, by inserting therein a comma "," following the word "property" and by inserting therein the phrase ", or as a trustee" following the word "appointment".

Section 4. Amend § 3570(8), Title 12, Delaware Code, by inserting the word ':Qualified" prior to the word "Trustee" where it first appears and by substituting the word "trustee" for "Trustee"; by inserting in paragraph a. thereof the phrase "other than the transferor following the word ''State" where it appears for the first time; by striking from paragraph b. thereof the phrase "transferred to the trustee" and by inserting therein following the word "property" the phrase "that is the subject of the qualified disposition"; and by inserting new paragraphs c., d. and e. therein as follows:

"c. For purposes of this subchapter, neither the transferor nor any other natural person who is a nonresident of this State nor an entity that is not authorized by the law of this State to act as a trustee or whose activities are not subject to supervision as provided in paragraph a. of this subsection (8) shall be considered a qualified trustee; however, nothing in this subchapter shall preclude a transferor from appointing one or more advisers, including but not limited to (i) advisers who have authority under the terms of the trust instrument to remove and appoint qualified trustees or trust advisers, (ii) advisers who have authority under the terms of the trust instrument to direct, consent to or disapprove distributions from the trust and (iii) advisers described in § 3313 of this title, whether or not such advisers would meet the requirements imposed by paragraphs a. and b. of this subsection. For purposes of this subsection, the term "adviser includes a trust "protector" or any other person who, in addition to a qualified trustee, holds one or more trust powers.

d. An individual may serve as an investment adviser described in § 3313 of this title, notwithstanding that such individual is the transferor of the qualified disposition, but such an individual may not otherwise serve as adviser of a trust that is a qualified disposition except with respect to the retention of the veto right permitted by § 3570(9)b. of this title.

e. In the event that a qualified trustee ceases to meet the requirements of paragraph a. of this subsection, such qualified trustee shall be deemed to have resigned as of the time of such cessation, and thereupon the successor qualified trustee provided for in the trust instrument shall become a qualified trustee, or in the absence of any successor qualified trustee provided for in the trust instrument, the Court of Chancery shall, upon application of any interested party, appoint a successor qualified trustee."

Section 5. Amend § 3570(9), Title 12, Delaware Code, by inserting the word "qualified" prior to the word "trustee" where it first appears and by inserting the phrase or qualified trustees" following the word "trustee' where it first appears; by striking in its entirety that portion of paragraph b. thereof following the words and punctuation more of the following:" and by inserting therein as follows:

"(i) a transferor's power to veto a distribution from the trust, (ii) a testamentary special power of appointment or similar power held by the transferor, (iii) the transferor's potential or actual receipt of income, including rights to such income retained in the trust instrument, or (iv) the transferor's potential or actual receipt of principal if such potential or actual receipt of principal is either in the sole discretion of a qualified trustee or qualified trustees or is pursuant to an ascertainable standard contained in the trust instrument; and";

and, as to paragraph c. thereof, by striking from said paragraph the word "a" where it first appears, by inserting in its place the phrase the transferor or other, by striking the word or following the word "transferred" and inserting in its place a comma ",", by inserting the phrase "pledged or mortgaged," following the word and punctuation "assigned,", by inserting the word "qualified" prior to the word "trustee", by striking the word "distributes" following the word "trustee" and by inserting in lieu thereof the phrase or qualified trustees actually distribute" following the word "trustee", by inserting the word "therefrom" following the word "income" where it appears for the second time, and by striking the period "." at the end of the said paragraph c. and inserting at the end thereof as follows:

", and such provision of the trust instrument shall be deemed to be a restriction on the transfer of the transferor's beneficial interest in the trust that is enforceable under applicable nonbankruptcy law within the meaning of § 541(c)(2) of the Bankruptcy Code (11 U.S.C. § 541(c)(2)) or any successor provision thereto."

Section 6. Amend § 3571, Title 12, Delaware Code, by striking said section in its entirety and by inserting in its place as follows:

"§ 3571. Retained interests of transferor.

A qualified disposition shall remain subject to § 3572 of this title notwithstanding a transferor's retention of any or all of the powers and rights described in § 3570(9)b. of this title."

Section 7. Amend § 3572, Title 12, Delaware Code, by inserting in said section new subsections (c) and (d) thereof as follows:

"(c) For purposes of this subchapter, a qualified disposition that is made by means of a disposition by a transferor who is a trustee shall be deemed to have been made as of the time the property that is the subject of the qualified disposition was originally transferred to the transferor (or any predecessor trustee) making the qualified disposition in a form that meets the requirements of § 3570(9)b. and c. of this title."

"(d) Notwithstanding any other law to the contrary, a disposition shall not be treated as fraudulent or otherwise contrary to law for, purposes of any action against any trustee or any adviser described in § 3570(8)c. of this title unless it is shown that such trustee or adviser acted in bad faith."

Section 8. Amend § 3573, Title 12, Delaware Code, by striking from subsection (1) thereof the word "of' following the word "division" and inserting in its place the word "or".

Section 9. Amend § 3574(6), Title 12, Delaware Code, by striking from paragraph (1) thereof the word the where it appears for the second time and by inserting therein the phrase "a qualified" prior to the word "trustee"; by striking from subparagraph a. thereof the word the where it appears for the first and sixth times and by inserting therein the phrase Such qualified" prior to the word "trustee" in the first instance where it appears and the phrase such qualified" prior to the word "trustee" in the second instance where it appears; by striking from subparagraph

b. thereof the word "the" where it appears for the third time, by inserting therein the phrase "such qualified" prior to the word "trustee" where it appears for the first time and by inserting the word "qualified" prior to the word "trustee" where it appears for the second time; by striking from subparagraph c. thereof the word "subdivision", by inserting the word "paragraph" prior to the notation "(1)", by striking the word the and by inserting the phrase "such qualified" prior to the word "trustee"; and by inserting in paragraph (2) thereof the word "qualified" prior to the word "trustee" and by inserting the phrase or qualified trustees" following the word "trustee".

Section 10. Amend § 3575, Title 12, Delaware Code, by therein inserting the phrase and dispositions by transferors who are trustees" prior to the word "made".

Section 11. This Act shall become effective upon the date of its enactment, except that Section 7 of this Act shall apply to all qualified dispositions made by transferors on or after July 1, 1997 and Section 8 of this Act shall apply to all trusts becoming irrevocable on or after July 1, 1997.

Approved June 29, 1998