SENATE BILL NO. 117
AS AMENDED BY
SENATE AMENDMENT NO. 1
AN ACT AMENDING TITLE 12 OF THE DELAWARE CODE RELATING TO WILLS, ESTATES, AND TRUSTS.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE :
Section 1. Amend Title 12, Delaware Code by deleting §3303, and by substituting in lieu thereof, the following:
“§ 3303. Effect of provisions of instrument:
(a) Notwithstanding any other provision of this Code or other law, the terms of a governing instrument may expand, restrict, eliminate, or otherwise vary the rights and interests of beneficiaries, including, but not limited to, the right to be informed of the beneficiary's interest for a period of time, the grounds for removal of a fiduciary, the circumstances, if any, in which the fiduciary must diversify investments, and a fiduciary's powers, duties, standard of care, rights of indemnification and liability to persons whose interests arise from that instrument; provided, however, that nothing contained in this section shall be construed to permit the exculpation or indemnification of a fiduciary for the fiduciary's own willful misconduct or preclude a court of competent jurisdiction from removing a fiduciary on account of the fiduciary's willful misconduct. The rule that statutes in derogation of the common law are to be strictly construed shall have no application to this section. It is the policy of this section to give maximum effect to the principle of freedom of disposition and to the enforceability of governing instruments.
(b) In furtherance of and not in limitation of the provisions of subsection (a) of this section, the terms of a governing instrument of a trust established and existing for religious, charitable, scientific, literary, or educational purposes or for noncharitable purposes shall not be modified by the court to change the trust's purposes unless the purposes of the trust have become unlawful under the Constitution of this State or the United States or the trust would otherwise no longer serve any religious, charitable, scientific, literary, educational, or noncharitable purpose, in which case the court shall proceed in the manner directed by § 3541 of this Title. A settlor may maintain an action to enforce a charitable or noncharitable trust under this section and may designate a person or persons, whether or not born at the time of such designation, to enforce a charitable or noncharitable trust under this section. For purposes of this subsection, a ‘noncharitable purpose’ is a purpose within the meaning of § 3555 of this Title.”
Section 2. Amend § 3313, Title 12, Delaware Code by deleting this word “wilful” at each location as found therein, and by substituting in lieu thereof, the word “willful” at each location, and further by adding a new subsection (e) to read as follows:
“(e) Whenever a governing instrument provides that a fiduciary is to follow the direction of an adviser with respect to investment decisions, distribution decisions, or other decisions of the fiduciary, then, except to the extent that the governing instrument provides otherwise, the fiduciary shall have no duty to (1) monitor the conduct of the adviser; (2) provide advice to the adviser or consult with the adviser; or (3) communicate with or warn or apprise any beneficiary or third party concerning instances in which the fiduciary would or might have exercised the fiduciary’s own discretion in a manner different from the manner directed by the adviser. Absent clear and convincing evidence to the contrary, the actions of the fiduciary pertaining to matters within the scope of the adviser’s authority (such as confirming that the adviser’s directions have been carried out and recording and reporting actions taken at the adviser’s direction), shall be presumed to be administrative actions taken by the fiduciary solely to allow the fiduciary to perform those duties assigned to the fiduciary under the governing instrument and such administrative actions shall not be deemed to constitute an undertaking by the fiduciary to monitor the adviser or otherwise participate in actions within the scope of the adviser’s authority.”
Section 3. Amend Subsection (a), Section 3528, Title 12, Delaware Code by inserting the words “grant a power of appointment (including a power to appoint trust property to the powerholder, the powerholder’s creditors, the powerholder’s estate, the creditors of the powerholder’s estate or any other person, whether or not such person is a trust beneficiary) to one or more of the trust beneficiaries who are proper objects of the exercise of the power in the first trust and may” immediately after the word “may” appearing in the last sentence of Subsection (a).
Section 4. Amend § 3536, Title 12, Delaware Code by making the following changes:
(i) Insert the following words at the end of the third sentence in Subsection (a):
“and no such creditor shall bring any action at law or in equity against a trustee seeking any remedy directly or indirectly affecting the beneficiary’s interest in the trust such as, but not limited to, an order (1) compelling the trustee to notify the creditor of a distribution from the trust; (2) compelling the trustee to make a distribution from the trust (whether or not pursuant to an ascertainable standard); or (3) prohibiting the trustee from making a distribution from the trust in payment of an expense of the beneficiary.”
(ii) Insert the phrase “direct or indirect assignment, whether voluntary or involuntary,” in lieu of the word “assignment” appearing in the fourth sentence of Subsection (a).
(iii) Insert a new sentence immediately following the fourth sentence of Subsection (a) to read as follows: “No beneficiary may waive the application of this subsection (a).”
(iv) Insert a new sentence at the end of Subsection (a) to read as follows: “Regardless of whether a beneficiary has any outstanding creditor, a trustee may directly pay any expense on behalf of such beneficiary to the extent permitted by the governing instrument and may exhaust the income and principal of the trust for the benefit of such beneficiary. A trustee will not be liable to any creditor of a beneficiary for paying the expenses of a beneficiary.”
(v) Add a new Subsection (f) to read as follows:
“(f) A beneficiary eligible to receive distributions from a trust in the trustee’s discretion and not pursuant to an ascertainable standard or some other enforceable standard, such as a mandatory right to receive income or principal, has a discretionary interest in the trust. A discretionary interest is neither a property interest nor an enforceable right – it is a mere expectancy. No creditor may cause a court to foreclose a discretionary interest or require a trustee to make a distribution with respect to a discretionary interest and discretionary interests shall be exempt from execution, attachment, sequestration, distress for rent, and all other legal or equitable process instituted by or on behalf of such creditors.”
Section 5. Amend Section 3536, Title 12, Delaware Code by deleting subsection (c), and substituting in lieu thereof, the following:
“(c) Except as provided in subchapter VI of this chapter or if the trustor’s sole retained beneficial interest is a right to receive discretionary distributions to reimburse the trustor for income tax liability attributable to the trust (in which case the requesting trustor shall not be considered a beneficiary), 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.”
Section 6. Amend Title 12, Delaware Code, by deleting §3541 and substituting in lieu thereof the following:
“§ 3541. Administration of charitable trusts or noncharitable purpose trusts; cy pres rule.
(a) Subject to subsection (b) of this section, if a particular charitable purpose or noncharitable purpose becomes unlawful under the Constitution of this state or the United States or the trust would otherwise no longer serve any religious, charitable, scientific, literary, educational, or noncharitable purpose:
(1) The trust does not fail in whole or in part;
(2) The trust property does not revert to the trustor or the trustor's successors in interest; and
(3) The Court of Chancery shall modify or terminate the trust and direct that the trust property be applied or distributed, in whole or in part, in a manner consistent with the trustor's charitable or noncharitable purposes, whether or not such purposes be specific or general.
(b) The power of the Court of Chancery to modify or terminate a charitable or noncharitable purpose trust, as provided in subsection (a) of this section, is in all cases subject to a contrary provision in the terms of the trust instrument, whether such contrary provision directs that the trust property be distributed to a charitable or noncharitable beneficiary.
(c) For purposes of this section, a ‘noncharitable purpose’ is a purpose within the meaning of § 3555 of this title.”
Section 7. Amend Title 12, Delaware Code by deleting §3543, and substituting in lieu thereof the following:
“§ 3543. Distribution of estate or trust assets without creation of trust.
If the terms of a will or a writing creating a trust, including, but not limited to an inter vivos trust agreement, provide for the establishment of a trust all the assets of which, due to the circumstances existing at the time the trust is to be established, are required to be distributed to the trust's beneficiary or beneficiaries immediately, the executor, trustee, or other party having possession of the property with which such trust will be established, is authorized to make direct distribution 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, trustee, or other party having possession of the property with which such trust would be established, to the same extent as the receipt of the trustee.”
Section 8. Amend Title 12, Delaware code by deleting §3547, and substituting in lieu thereof the following:
“§ 3547. Representation by person having substantially identical interest.
(a) Unless otherwise represented, a minor, incapacitated, or unborn person, or a person (hereinafter referred to as an ‘unascertainable person’) whose identity or location is unknown and not reasonably ascertainable, may for all purposes (including for purposes of any judicial proceeding and for purposes of non-judicial matters such as, but not limited to, the granting of releases pursuant to Section 3588 and measuring the limitation period described in Section 3585) be represented by and bound by another who has a substantially identical interest with respect to the particular question or dispute, but only to the extent that there is no material conflict of interest between the representative and the person represented with respect to the particular question or dispute.
(b) A presumptive remainder beneficiary may represent and bind contingent successor remainder beneficiaries for the same purposes, in the same circumstances, and to the same extent as an ascertainable competent beneficiary may represent and bind a minor, incapacitated, unborn, or unascertainable person. As used in this subsection (b), the term “presumptive remainder beneficiary” means, as of any date, a beneficiary who would receive income or principal of the trust if the trust were to terminate as of that date (without regard to the exercise of any power of appointment) or, if the trust does not provide for its termination, a beneficiary who would receive or be eligible to receive distributions of income or principal of the trust if all of the beneficiaries currently receiving or eligible to receive distributions of income or principal of the trust were deceased.
(c) In the case of a trust having a minor or incapacitated beneficiary who may not be represented by another pursuant to subsection (a) or (b) of this section, the custodial parent or parents or guardian of the property of the beneficiary may represent and bind the beneficiary for purposes of any judicial proceeding or non-judicial matter pertaining to the trust; provided that, in the case of a custodial parent or parents, there is no material conflict of interest between the minor or incapacitated beneficiary and either of such beneficiary’s parents with respect to the particular question or dispute. Furthermore, such representative may, for all purposes, represent and bind an unborn person or unascertainable person who has an interest, with respect to the particular question or dispute, that is substantially identical to the interest of the minor or incapacitated beneficiary represented by the representative, but only to the extent that there is no material conflict of interest between the minor or incapacitated beneficiary represented by the representative and the unborn or unascertainable person with respect to the particular question or dispute.”
Section 9. Amend, Title 12, Delaware Code, by adding thereto a new Section 3549 to read as follows:
“§ 3549. Marital deduction gift -- compliance with Internal Revenue Code -- fiduciary powers.
(a) If a governing instrument contains a marital deduction gift, the governing instrument shall be construed to comply with the marital deduction provisions of the Internal Revenue Code in every respect.
(b) If a governing instrument contains a marital deduction gift, any fiduciary operating under the governing instrument has all the powers, duties, and discretionary authority necessary to comply with the marital deduction provisions of the Internal Revenue Code. The fiduciary shall not take any action or have any power that may impair that deduction, but this does not require the fiduciary to make the election under § " target="_top">2056(b)(7) or § " target="_top">2523(f) of the Internal Revenue Code .
(c) For purposes of this section, ‘marital deduction gift’ means a gift intended to qualify for the marital deduction as indicated by a preponderance of the evidence including the governing instrument and extrinsic evidence whether or not the governing instrument is found to be ambiguous.
(d) For purposes of this section, ‘Internal Revenue Code’ means the Internal Revenue Code of 1986 [26 U.S.C. § 1, et seq.], as amended, or any corresponding federal tax statute enacted hereafter.”
Section 10. Amend § 3572, Title 12, Delaware Code, by deleting subsection (a), and substituting in lieu thereof a new subsection (a) to read as follows:
“(a) Notwithstanding any other provision of this Code, no action of any kind, including, without limitation, an action to enforce a judgment entered by a court or other body having adjudicative authority, shall be brought at law or in equity for an attachment or other provisional remedy against property that is the subject of a qualified disposition or for avoidance of a qualified disposition unless such action shall be brought pursuant to the provisions of § 1304 or § 1305 of Title 6 and, in the case of a creditor whose claim arose after a qualified disposition, unless the qualified disposition was made with actual intent to defraud such creditor. The Court of Chancery shall have exclusive jurisdiction over any action brought with respect to a qualified disposition.”
Section 11. Amend Title 12, Delaware Code by adding thereto a new Section 3927 to read as follows:
“§ 3927. Compensation of Guardian of the Property.
(a) As used in this section, the term ‘qualified guardian’ means any person who is a ‘qualified trustee’ as defined in § 3561 of this Title.
(b) All persons who serve as guardian of the property of a disabled person shall be entitled to reasonable compensation for their services.
(c) Each qualified guardian shall file with the Register in Chancery for every county in this State, a copy of a schedule or a formula by which its allowance as compensation for serving as guardian of the property of a disabled person shall be computed. Such schedule or formula may be based upon or reflect the following factors:
(1) The time spent or likely to be spent in administering a guardianship of the property.
(2) The risks and responsibilities involved.
(3) The novelty and difficulty of the tasks required of the guardian.
(4) The skill and experience of the guardian.
(5) Comparable charges for similar services.
(6) The character of the guardianship assets.
(7) The time constraints imposed upon the guardian in administering the trust.
The schedule or formula pursuant to this paragraph (c) shall result in a fee no greater than that filed by the qualified guardian pursuant to § 3561 of this Title with respect to its fees as trustee, for a trust of comparable size.
(d) Each qualified guardian shall provide a copy of its current guardianship fee schedule or formula as filed or upon any filing pursuant to subparagraph (c) of this paragraph to such persons as the Court of Chancery may require by rule of the court or by the order of the Court of Chancery appointing the qualified guardian.
(e) For other persons serving as guardian of the property of a disabled person, the Court of Chancery shall from time to time promulgate a rule fixing the method by which guardians of the property other than qualified guardians may be allowed compensation for their services.
(f) Upon proper showing, the Court of Chancery may fix or allow greater compensation than that set forth in the fee schedule of a qualified guardian or that allowed by rule of the Court of Chancery, whichever is applicable, where the compensation provided in the fee schedule of a qualified guardian or that allowed by rule of the Court of Chancery, whichever is applicable, is inadequate because the duties of the guardianship are substantially greater than those for a typical guardianship of its size or under extraordinary circumstances.”
Section 12. Amend Section 6104, Title 12, Delaware Code, by adding a new sentence at the end of Subsection (a) to read as follows:
“In the case of an asset becoming subject to a trust by reason of a distribution from another trust or division of another trust, it becomes subject to the trust as of the date of the event requiring the distribution or division.”
Section 13. Amend Section 3325, Chapter 33, Title 12, Delaware Code, by deleting in the first sentence thereof the section number “3404” and substituting in lieu thereof the section number “3324.”
Section 14. Amend §3570 (10) b., Title 12, Delaware Code, by adding thereto new subparagraph 10 to read as follows:
“10. The ability, whether pursuant to discretion or direction, of a qualified trustee to pay, after the death of the transferor, all or any part of the debts of the transferor outstanding at the time of the transferor’s death, the expenses of administering the transferor’s estate, or any estate or inheritance tax imposed on or with respect to the transferor’s estate.”
Section 15. Amend Section 3574, Chapter 35, Title 12, Delaware Code, by adding new subsection (e) to read as follows:
“(e) Notwithstanding any other provision of this subchapter, a creditor shall have no right against the interest of a beneficiary in a trust solely because such beneficiary has the right to authorize or direct the trustee to pay all or part of the trust property in satisfaction of estate or inheritance taxes imposed upon or with respect to the beneficiary’s estate, or the debts of the beneficiary’s estate, or the expenses of administering the beneficiary’s estate unless such beneficiary actually directs the payment of such taxes, debts or expenses and then only to the extent of such direction.”
Section 16. Amend Title 12, Delaware Code, by deleting the text of §3944, and by substituting in lieu thereof the following:
“(a) The Court may excuse the filing of an account or accounts required under Section 3941 for cause shown or if waived by (i) if the disabled person has a will, all of those persons who would be entitled to the residue of the disabled person’s estate if the disabled person died at the time any such accounting would otherwise be required or was required to be filed or (ii) if the disabled person has no will, all of those persons who would be entitled to the real and personal property of the disabled person if the disabled person died at the time any such accounting would otherwise be required or was required to be filed, intestate and a resident of the State of Delaware. The Court may also, for cause shown, extend the time for the guardian to file an account or accounts. If no account is required of the guardian pursuant to this Subsection, no inventory of the guardianship estate need be filed by the guardian.
(b) If a guardian fails to account when due, the Court shall cite such guardian therefore and may compel the filing of the account by process of attachment or by imprisonment.”
Section 17. Amend Subsection (1), Section 3592, Title 12, Delaware Code, by deleting said subsection in its entirety and substituting a new subsection (1) to read as follows:
“(1) If such failure occurs simultaneously with the death of the trustor, the trust principal not effectively disposed of shall be treated as though it were an additional part of the trustor’s estate, and shall be disposed of in accordance with the provisions of the trustor’s will, or if the trustor has no valid will, then the provisions of §501 et seq. of this title shall govern the disposition of such principal.”
Section 18. Amend Subsection (a), Section 1308, Title 12, Delaware Code, by deleting the first sentence in that subsection, and by substituting in lieu thereof, the following::
“A caveat against the allowance of an instrument as a will shall be received by the Court of Chancery at any time prior to the entry of an order of probate.”
Section 19. Amend Title 12, Delaware Code, by adding new Section 3333 to read as follows:
“§ 3333. Retention of Counsel by Fiduciary. Except as provided in the governing instrument, a fiduciary may retain counsel in connection with any claim that has or might be asserted against the fiduciary, and the payment of counsel fees and related expenses from the fund with respect to which the fiduciary acts as such shall not cause the fiduciary to waive or to be deemed to have waived any right or privilege including, without limitation, the attorney-client privilege. However, in the event that the fiduciary is found to have breached some fiduciary duty, the Court may, in its discretion, deny such fiduciary the right to have some part or all of such fees and expenses paid from such fund and may require the fiduciary to reimburse any such fees and expenses that have previously been paid.”
Section 20. Amend Section 3522, Title 12, Delaware Code, by deleting the body of that section and substituting in lieu thereof the following:
“Trustees named in wills and trustees appointed by the Court shall be required to file accounts as described in Section 3521 only in accordance with the express terms, if any, of any such trust or upon order of the Court with respect to any such trust. A trustee who, pursuant to this Section, is not required to file an account for a trust shall not be required to file an inventory with respect to such trust.”
Section 21. Sections 1 through 17 and Section 19 of this Act shall be effective on August 1, 2007, and shall apply to trusts, estates, and guardianships whenever created. Section 18 of the Act shall apply to caveats filed after the date of enactment. Section 20 of the Act shall be effective with respect to trustees appointed by the Court of Chancery after July 31, 2005, to successor trustees appointed pursuant to the terms of a will after July 31, 2005, and to trustees under the wills of decedents dying after July 31, 2005.
Approved July 05, 2007