SENATE BILL NO. 123
AN ACT AMENDING TITLE 12 OF THE DELAWARE CODE RELATING TO TRUSTS.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE :
Section 1. Amend § 3302, Title 12 of the Delaware Code, by deleting Subsection (c) in its entirety and substituting in lieu thereof the following:
"(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:
1. The inherent nature and expected performance of the investment portfolio;
2. The limitations of the standard set forth in Subsection (a) of this Section; and
3. The nature and extent of other investments and resources, whether held in trust or otherwise, available to the beneficiaries as they existed at the time of the decision; provided, however, that the fiduciary shall have no duty to inquire as to the nature and extent of any such other investments and resources not held by the fiduciary.
Any determination of liability for investment performance shall consider the performance of the entire portfolio and such other factors as the fiduciary considered when the investment decision was made."
Section 2. Amend § 3302, Title 12 of the Delaware Code, by redesignating existing Subsections (d) through (f) thereof as Subsections (e) through (g) and by adding a new subsection (d) to read as follows:
"(d) Notwithstanding the foregoing provisions of this Section, a trustee who discloses the application of this Subsection (d) and the limitation of the trustee's duties thereunder either in the governing instrument or in a separate writing delivered to each insured at the inception of a contract of life insurance or thereafter if prior to an event giving rise to a claim thereunder, may acquire or retain a contract of life insurance upon the life of the trustor or the trustor's spouse, or both, without liability for a loss arising from the trustee's failure to:
1. Determine whether the contract is or remains a proper investment;
2. Investigate the financial strength or changes in the financial strength of the life insurance company;
3. Make a determination of whether to exercise any policy option available under the contract;
4. Make a determination of whether to diversify such contracts relative to one another or to other assets, if any, administered by the trustee; or
5. Inquire about changes in the health or financial condition of the insured or insureds relative to any such contract."
Section 3. Amend Subchapter II, Chapter 35, Title 12 of the Delaware Code, by adding the following new section:
"§ 3528. Trustee's authority to invade principal in trust.
(a) Unless the terms of the instrument expressly provide otherwise, a trustee who has authority, under the terms of a testamentary instrument or irrevocable inter vivos trust agreement, to invade the principal of a trust to make distributions to, or for the benefit of, one or more proper objects of the exercise of the power, may instead exercise such authority by appointing all or part of the principal of the trust in favor of a trustee of a trust under an instrument other than that under which the power to invade is created or under the same instrument, provided, however, that the exercise of such authority is in favor of a trust having only beneficiaries who are proper objects of the exercise of the power.
(b) The exercise of the power to invade the principal of the trust under Subsection (a) of this Section shall be by an instrument in writing, signed and acknowledged by the trustee and filed with the records of the trust.
(c) The exercise of the power to invade the principal of the trust under Subsection (a) of this Section shall be considered the exercise of a power of appointment (other than a power to appoint to the trustee, the trustee's creditors, the trustee's estate, or the creditors of the trustee's estate) and shall be subject to the provisions of Chapter 5 of Title 25 of this Code covering the time at which the permissible period of the rule against perpetuities begins and the law which determines the permissible period of the rule against perpetuities.
(d) The provisions of this section shall not be construed to abridge the right of any trustee who has a power of invasion to appoint property in further trust which arises under any other section of this chapter or under another statute or under common law."
Section 4. Amend § 3536, Title 12 of the Delaware Code, by adding new subsections to read as follows:
"(c) Except as provided in Subchapter VI of this Chapter, if the trustor is also a beneficiary of a trust, a provision restraining the voluntary or involuntary transfer of the trustor's beneficial interest does not prevent the trustor's creditors from satisfying claims from the trustor's interest in the trust to the extent that such interest is attributable to the trustor's contributions thereto.
(d) A beneficiary of a trust shall not be considered a trustor merely because of a lapse, waiver, or release of the beneficiary's right to withdraw a part of the trust property if the value of the property that could have been withdrawn by exercising the right of withdrawal in any calendar year does not exceed at the time of the lapse, waiver, or release the greater of the amount specified in:
1. Section 2041(b)(2) or § 2514(e) of the Internal Revenue Code [26 U.S.C. § 1, et seq.] and any successor provision thereto; or
2. Section 2503(b) of the Internal Revenue Code and any successor provision thereto."
Section 5. Amend § 3546, Title 12 of the Delaware Code, by deleting the title of such Section and by deleting Subsection (a) of such Section in its entirety and substituting in lieu thereof the following:
"§ 3546. Limitation on action contesting validity of trusts.
(a) A judicial proceeding to contest whether a trust was validly created may not be initiated later than the first to occur of:
1. One hundred twenty days after the date of the trustee notified the person of the trust's existence, of the trustee's name and address, of whether the person is a beneficiary, and of the time allowed for initiating a judicial proceeding to contest the trust provided, however, that no trustee shall have a duty to provide any such notice and no trustee shall have any liability under the governing instrument or to any third party for the trustee's failure to provide any such notice;
2. Two years after the trustor's death;
3. If the trust was revocable at the trustor's death and the trust was specifically referred to in the trustor's last will, the time in which a petition for review of a will could be filed under this title; or
4. The date the person's right to contest was precluded by adjudication, consent or other limitation."
Section 6. Section 1 of this Act shall be effective with respect to actions taken by fiduciaries after enactment of this Act. Section 2 of this Act shall take effect on the date of enactment and shall apply to contracts of insurance whenever acquired. Section 3 of this Act shall take effect upon enactment and shall apply to trusts whenever created. Section 4 of this Act shall apply to contributions or additions made to trusts after enactment of this Act. Section 5 of this Act shall be effective ninety days after enactment and shall apply to any contest brought thereafter.
Approved June 30, 2003