CHAPTER 254

FORMERLY

SENATE BILL NO. 247

AN ACT TO AMEND TITLE 12 OF THE DELAWARE CODE RELATING TOTRUSTS AND ESTATES AND TITLE 25 OF THE DELAWARE CODE RELATING TO PROPERTY.

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

Section 1. Amend subsection (a), § 2322, Subchapter II, Chapter 23, Title 12, Delaware Code, by deleting paragraph (3), and substituting in lieu thereof the following:

“(3) ‘Slayer’ shall mean any person who pleads guilty or nolo contendere to or is convicted of the offenses described in § 632, § 635, or § 636 of Title 11, as the same may be amended from time to time, excluding, however, those persons who plead guilty or nolo contendere or are convicted of manslaughter under § 632 of Title 11 as a result of the mitigating circumstances of extreme emotional distress as described in § 641 of Title 11. ‘Slayer’ shall also mean (i) any person who pleads guilty or nolo contendere to or is convicted in a court of competent jurisdiction under the laws of the United States, any state, commonwealth, possession, or territory thereof, or any foreign country that requires that guilt be proven beyond a reasonable doubt of any act that would constitute an offense described in the preceding sentence or (ii) any person, excluding a person who has been acquitted, found not guilty, or against whom a charge of having committed a homicide against a Decedent has been found by a court of competent jurisdiction to be not proved, who is determined beyond a reasonable doubt by a court of competent jurisdiction to have committed a homicide against a Decedent.”

Section 2. Amend § 3301, Chapter 33, Title 12, Delaware Code, by adding thereto a new subsection (g) to read as follows:

“(g) For purposes of construing a governing instrument, unless a contrary statement appears in such governing instrument:

(1) The term ‘fiduciary fund’ means the trust, estate, guardianship account, or account established under a Uniform Transfers to Minors Act that is being administered by a fiduciary.

(2) The term ‘interested person’ means any living person who:

(a) Is an income beneficiary or remainder beneficiary of a trust;

(b) Has a vested interest in a decedent’s estate;

(c) Receives benefits as a ward from a guardianship account; or

(d) Is the minor with respect to an account established under a Uniform Transfers to Minors Act.

(3) 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 a person legally adopted, whether under or over the age of 18 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 the adopting person’s ascendants.”

Section 3. Amend the last sentence of subsection (b), § 3303, Chapter 33, Title 12, Delaware Code, by striking that sentence and substituting in lieu thereof, the following:

“For purposes of this subsection, a ‘noncharitable purpose’ is a purpose within the meaning of § 3555 or § 3556 of this title.”

Section 4. Amend § 3306, Chapter 33, Title 12, Delaware Code, by deleting the word “nothing” and by inserting “Subject to the provisions of § 3303, nothing” at the beginning of the section in lieu thereof.

Section 5. Amend § 3313, Chapter 33, Title 12, Delaware Code, by adding thereto a new subsection (f) to read as follows:

“(f) For purposes of this section, the term ‘adviser’ shall include a ‘protector’ who shall have all of the power and authority granted to the protector by the terms of the governing instrument, which may include but shall not be limited to:

(1) The power to remove and appoint trustees, advisers, trust committee members, and other protectors;

(2) The power to modify or amend the governing instrument to achieve favorable tax status or to facilitate the efficient administration of the trust; and

(3) The power to modify, expand, or restrict the terms of a power of appointment granted to a beneficiary by the governing instrument.”

Section 6. Amend Chapter 33, Title 12, Delaware Code, by adding thereto a new § 3314 to read as follows:

Ҥ 3314. Limitation on certain fiduciary powers.

(a) This section shall apply to:

(1) Any trust created under a governing instrument that, but for this section, would permit any of the powers described in subsection (c) of this section to be exercised by the fiduciary unless the governing instrument expressly provides that this section does not apply.

(2) For purposes of this section, the term ‘fiduciary’ means any trustee or trust adviser or the personal representative of an estate except to the extent the governing instrument expressly states that such person is not serving in a fiduciary capacity.

(b) This section shall not apply to:

(1) Any trust during the time that the trust is revocable or amendable by its trustor.

(2) A spouse of a decedent or trustor where the spouse is a fiduciary of a testamentary or inter vivos trust for which a marital deduction has been allowed.

(3) A fiduciary who possesses in such fiduciary’s individual, nonfiduciary, capacity an unlimited right to appoint all or part of the property held in trust to the fiduciary, the fiduciary’s estate, the fiduciary’s creditors, or the creditors of the fiduciary’s estate.

(4) A trust under a governing instrument that by specific reference expressly rejects the application of this section.

(5) A trust created under a governing instrument executed on or before August 1, 2008, if, in the case of a fiduciary’s possessing a power described in subsection (c) and dying at any time on or after August 1, 2008, no part of the property of the trust would be included in the gross estate of the fiduciary for federal estate-tax purposes or, notwithstanding that all or some part of the property held in trust would be so included, no federal estate tax would be payable by such estate.

(6) A trust created under a governing instrument executed on or before August 1, 2008, if, in the case of a beneficiary’s possessing a power to appoint a trustee and dying at any time on or after August 1, 2008, no part of the property of the trust would be included in the gross estate of the beneficiary for federal estate-tax purposes or, notwithstanding that all or some part of the property held in trust would be so included, no federal estate tax would be payable by such estate.

(c) The following powers conferred by a governing instrument upon a fiduciary in his or her capacity as a fiduciary shall not be exercised by that fiduciary:

(1) The power to make discretionary distributions of either principal or income to or for the benefit of the fiduciary, the fiduciary’s estate, the creditors of the fiduciary, or the creditors of the fiduciary’s estate unless the power is either:

(i) Limited by an ascertainable standard relating to the fiduciary’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 fiduciary 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 fiduciary 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 fiduciary’s personal legal obligations for support or other purposes.

(3) The power to make discretionary allocations in the fiduciary’s personal favor of receipts or expenses as between income and principal unless the fiduciary has no power to enlarge or shift any beneficial interest except as an incidental consequence of the discharge of the fiduciary’s duties.

(4) The power to exercise any of the powers proscribed in this subsection with regard to an individual other than the fiduciary to the extent that the individual could exercise a similar prohibited power in connection with a trust that benefits the fiduciary.

(5) The power to make an election, other than an election under 26 U. S. C. §§ 2056(b)(7) and 2523(f) (relating to the federal estate- and gift-tax marital deductions), in a fiduciary capacity that would cause the property over which the election could be made to be included in the gross estate of the fiduciary for federal estate-tax purposes.

(d) Notwithstanding the foregoing provisions:

(1) If a fiduciary is prohibited by this section from exercising a power conferred upon the fiduciary, the fiduciary nevertheless may exercise that power but shall be limited to distributions for the fiduciary’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 fiduciary may exercise a power described herein in favor of someone other than the fiduciary, the fiduciary’s estate, the creditors of the fiduciary, or the creditors of the fiduciary’s estate.

(3) Subject to the preceding paragraphs of this subsection, any purported exercise of a power proscribed by subsection (c) shall be void and of no effect.

(e) If a governing instrument creates a power proscribed by this section:

(1) If the power is conferred on two or more fiduciaries, it may be exercised by the fiduciary or fiduciaries who are not so prohibited as if they were the only fiduciary or fiduciaries.

(2) If there is no fiduciary in office who can exercise the power as provided in subsection (1), the court, upon petition and hearing after such notice as it may direct, shall appoint a fiduciary who is not disqualified and whose term in office shall be as the court directs for the sole purpose of exercising the power that the other fiduciary or fiduciaries cannot exercise.

(3) The court may, upon petition by any fiduciary or beneficiary of the trust subject to the power, appoint an additional fiduciary or fiduciaries.

(f) No beneficiary of a trust in an individual, fiduciary, or other capacity may appoint, or remove and appoint, a fiduciary who is related or subordinate to the beneficiary within the meaning of 26 U.S.C. § 672(c) unless:

(1) The fiduciary’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 26 U.S.C. §§ 2041 and 2514;

(2) The fiduciary’s discretionary power may not be exercised to satisfy any of the beneficiary’s legal obligations for support or other purposes; and

(3) The fiduciary’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 thereof within the meaning of 26 U.S.C. § 2041.

(4) This subsection shall not apply if the appointment of the fiduciary 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 26 U.S.C. § 2041(b)(1)(C)(ii).”

Section 7. Amend Chapter 33, Title 12, Delaware Code, by adding thereto a new § 3315 to read as follows:

“§ 3315. Trustee’s exercise of discretion; review by court; discretionary interests.

(a) Where discretion is conferred upon the fiduciary with respect to the exercise of a power, its exercise by the fiduciary shall be considered to be proper unless the court determines that the discretion has been abused within the meaning of § 187 of the Restatement (Second) of Trusts not §§ 50 and 60 of the Restatement (Third) of Trusts.

(b) A beneficiary eligible to receive distributions from a trust in the trustee’s discretion has a discretionary interest in the trust. A creditor may not directly or indirectly compel the distribution of a discretionary interest except to the extent expressly granted by the terms of a governing instrument in accordance with § 3536(a).”

Section 8. Amend Chapter 33, Title 12, Delaware Code, by repealing § 3321 thereof.

Section 9. Amend § 3536, Subchapter III, Chapter 35, Title 12, Delaware Code, by deleting that section and substituting in lieu thereof, the following:

Ҥ 3536. Rights of creditors and assignees of beneficiary of trust.

(a) Except as expressly provided in subsections (c) and (d) of this section, a creditor of a beneficiary of a trust shall have only such rights against such beneficiary’s interest in the trust or the property of the trust as shall be expressly granted to such creditor by the terms of the instrument that creates or defines the trust or by the laws of this State. The provisions of this subsection shall be effective regardless of the nature or extent of the beneficiary’s interest or of any action taken or that might be taken by the beneficiary. Every interest in a trust or in trust property or the income therefrom that shall not be subject to the rights of creditors of such beneficiary as provided herein shall be exempt from execution, attachment, distress for rent, foreclosure, and from all other legal or equitable process or remedies instituted by or on behalf of any creditor, including, without limitation, actions at law or in equity against a trustee or beneficiary that seeks a remedy that directly or indirectly affects a beneficiary’s interest such as, but not limited to, an order, whether such order be at the request of a creditor or on the court’s own motion, that would: (1) compel the trustee or beneficiary to notify the creditor of a distribution from the trust; (2) compel the trustee or beneficiary to make a distribution from the trust; (3) prohibit a trustee from making a distribution from the trust to or for the benefit of the beneficiary; or (4) compel the beneficiary to exercise a power of appointment or a power of revocation over the trust. Every direct or indirect assignment, or act having the effect of an assignment, whether voluntary or involuntary, by a beneficiary of a trust of the beneficiary’s interest in the trust or the trust property or the income or other distribution therefrom that is unassignable by the terms of the instrument that creates or defines the trust is void. No beneficiary may waive the application of this subsection (a). For purposes of this subsection (a), the creditors of a beneficiary shall include, but not be limited to, any person that has a claim against the beneficiary, the beneficiary’s estate, or the beneficiary’s property by reason of any forced heirship, legitime, marital elective share, or similar rights. The provisions of this subsection shall apply to the interest of a trust beneficiary until the actual distribution of trust property to the beneficiary. Regardless of whether a beneficiary has any outstanding creditor, a trustee may make direct payment of any expense on behalf of such beneficiary to the extent permitted by the instrument that creates or defines the trust and may exhaust the income and principal of the trust for the benefit of such beneficiary. A trustee shall not be liable to any creditor of a beneficiary for paying the expenses of a beneficiary.

(b) Notwithstanding subsection (a) of this section, a beneficiary entitled to receive all or a part of the income of a trust shall have the right to assign gratuitously in writing, at any time or from time to time, a stated fraction or percentage of the beneficiary's entire remaining income interest in such trust to the State or to any corporation, church, community chest, fund, or foundation authorized as a deduction pursuant to §§ 1107, 1108, and 1109 of Title 30 and such assignment shall be valid and binding on all parties irrespective of any restrictions on assignment contained in the instrument creating or defining the trust; provided, however, that this subsection shall not authorize a beneficiary of such a trust to reduce any part of the beneficiary's income interest which is subject to such restrictions on assignment below 50% of what such interest would be if no assignments were made under this subsection. Any interest assigned under this subsection, together with a corresponding portion of the corpus of the trust, shall be treated as a separate share and thereafter no provision of the trust permitting invasion of corpus for the benefit of the assignor shall be exercisable with respect to such share.

(c) Except as provided in Subchapter VI of this Chapter 12 of this Title 12, if the trustor is also a beneficiary of a trust, a provision that restrains the voluntary or involuntary transfer of the trustor’s beneficial interest shall not prevent such trustor’s creditors from satisfying their respective claims from the trustor’s interest in the trust to the extent that such interest is attributable to the trustor’s contributions to the trust. The preceding sentence shall have no application to a trustor if such trustor’s sole retained beneficial interest is a right to receive discretionary distributions to reimburse the trustor’s income tax liability attributable to the trust. Further, a beneficiary of a trust shall not be considered a trustor of a trust 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 of 1986 (26 U.S.C. § 2041(b)(2) or § 2514(e)), or any successor provision thereto; or

(2) Section 2503(b) of the Internal Revenue Code of 1986 (26 U.S.C. § 2503(b)), or any successor provision thereto.

(d) For purposes of subsection (a), a creditor shall have no right against the interest of a beneficiary of a trust or against the beneficiary or trustee of the trust with respect to such interest unless:

(1) The beneficiary has a power to appoint all or part of the trust property to the beneficiary, the beneficiary’s estate, the beneficiary’s creditors, or the creditors of the beneficiary’s estate by will or other instrument such that the appointment would take effect only upon the beneficiary’s death unless the beneficiary actually exercises such power in favor of the beneficiary, the beneficiary’s creditors, the beneficiary’s estate, or the creditors of the beneficiary’s estate but then only to the extent of such exercise.

(2) The beneficiary has a power to appoint all or part of the trust property to the beneficiary, the beneficiary’s creditors, the beneficiary’s estate, or the creditors of the beneficiary’s estate during the beneficiary’s lifetime unless the beneficiary actually exercises such power in favor of the beneficiary, the beneficiary’s creditors, the beneficiary’s estate, or the creditors of the beneficiary’s estate but then only to the extent of such exercise.

(3) The beneficiary has the power to revoke the trust in whole or in part during the beneficiary’s lifetime and, upon such revocation, the trust or the part thereof so revoked would be possessed by the beneficiary. This paragraph shall have no application to any part of the trust that may not be so revoked by the beneficiary.

(e) Notwithstanding subsection (a) of this section, a beneficiary of a charitable-remainder unitrust or charitable-remainder annuity trust as such terms are defined in § 664 of the Internal Revenue Code of 1986 (26 U.S.C. § 664) and any successor provision thereto, shall have the right, at any time and from time to time, by written instrument delivered to trustee, to release such beneficiary's retained interest in such a trust, in whole or in part, to a charitable organization that has or charitable organizations that have a succeeding beneficial interest in such trust. Notwithstanding subsection (a), a beneficiary may also disclaim an interest in a trust pursuant to Chapter 6 of this Title 12.”

Section 10. Amend subsection (c), § 3541, Subchapter III, Chapter 35, Title 12, Delaware Code, to read as follows:

“(c) For purposes of this section, a ‘noncharitable purpose’ is a purpose within the meaning of § 3555 or § 3556 of this title.”

Section 11. Amend Subchapter IV, Chapter 35, Title 12, Delaware Code, by deleting § 3555, and by substituting in lieu thereof, the following:

Ҥ 3555. Trust for care of an animal.

(a) A trust for the care of one or more specific animals living at the trustor’s death is valid. The trust terminates upon the death of all animals living at the trustor’s death and covered by the terms of the trust.

(b) A trust authorized by subsection (a) of this section shall not be invalid because it lacks an identifiable person as beneficiary.

(c) A trust authorized by subsection (a) of this section may be enforced by a person appointed in the terms of the trust or, if there is no such person or if the last such person no longer is willing and able to serve, by a person appointed by the Court of Chancery. A person who has an interest in the welfare of the animal or animals other than a general public interest may petition the Court of Chancery for an order that appoints a person to enforce the terms of the trust or to remove that person.

(d) Property of a trust authorized by this section may be applied only to its intended use. Upon the termination of the trust, any property of the trust remaining shall be distributed in accordance with the terms of the trust or, in the absence of such terms, as provided in § 3592 of this title.

(e) In the case of a trust created in accordance with subsection (a) of this section, a trustor or other owner of an animal for whose benefit the trust was created may transfer ownership of the animal to the trustee at or subsequent to the creation of the trust. Subject to any contrary provision in the trust or other instrument by which ownership of the animal is given or bequeathed, if the person to whom ownership of the animal is given or bequeathed disclaims or releases such ownership, ownership of the animal shall pass to the trustee upon such disclaimer or release.

(f) The trustee of a trust created in accordance with subsection (a) of this section shall provide care for the benefit of the animal in accordance with the terms of the trust or, in the absence of any such terms, shall provide care that is reasonable under the circumstances. The trustee may employ agents or contractors to provide any such care and pay for such care from the assets of the trust.

(g) For purposes of this section, the term ‘animal’ shall include any nonhuman member of the animal kingdom but shall exclude plants and inanimate objects.”

Section 12. Amend Subchapter IV, Chapter 35, Title 12, Delaware Code, by adding thereto a new § 3556 to read as follows:

Ҥ 3556. Trust for other noncharitable purposes.

(a) In addition to the provisions of § 3555 of this title, a trust for a declared purpose that is not impossible of attainment is valid notwithstanding that the trust might not be deemed to be for charitable purposes.

(b) A trust authorized by subsection (a) of this section shall not be invalid because it lacks an identifiable person as beneficiary.

(c) A trust authorized by subsection (a) of this section may be enforced by a person appointed in the terms of the trust or, if there is no such person or if the last such person no longer is willing and able to serve, by a person appointed by the Court of Chancery. A person who has an interest in the declared purpose of the trust other than a general public interest may petition the Court of Chancery for an order that appoints a person to enforce the terms of the trust or to remove that person.

(d) Property of a trust authorized by this section may be applied only to its intended use. Upon the termination of the trust, any property of the trust remaining shall be distributed in accordance with the terms of the trust or, in the absence of such terms, as provided in § 3592 of this title.”

Section 13. Amend paragraph b, subsection (11), § 3570, Subchapter VI, Chapter 35, Title 12, Delaware Code, by deleting subparagraph 7 in its entirety, and by substituting in lieu thereof, the following:

“7. The transferor’s right to remove a trustee or adviser and to appoint a new trustee or adviser;.”

Section 14. Amend paragraph b, subsection (11), § 3570, Subchapter VI, Chapter 35, Title 12, Delaware Code, by deleting subparagraph 9, and by substituting in lieu thereof, the following:

“9. The transferor's potential or actual receipt of income or principal to pay, in whole or in part, income taxes due on income of the trust if such potential or actual receipt of income or principal is pursuant to a provision in the trust instrument that expressly provides for the payment of such taxes and if such potential or actual receipt of income or principal would be the result of a qualified trustee's or qualified trustees' acting:
A. In such qualified trustee's or qualified trustees' discretion or pursuant to a mandatory direction in the trust instrument; or
B. At the direction of an adviser described in paragraph (8)c of this section who is acting in such adviser's discretion.
Distributions to pay income taxes made under a discretionary or mandatory provision included in a governing instrument pursuant to paragraph (11)b3, paragraph (11)b6, or this paragraph (11)b9 of this section may be made by direct payment to the taxing authorities.”

Section 15. Amend § 3585, Subchapter VII, Chapter 35, Title 12, Delaware Code, by redesignating subsection (d) thereof as subsection (e) and by adding thereto a new subsection (d) to read as follows:

“(d) If subsection (a) does not apply, a judicial proceeding by a beneficiary against a trustee for breach of trust must be commenced within five years after the first to occur of:

(1) The removal, resignation, or death of the trustee;

(2) The termination of the beneficiary’s interest in the trust; or

(3) The termination of the trust.”

Section 16. Amend § 503, Chapter 5, Title 25, Delaware Code, by deleting subsection (a), and by substituting in lieu thereof, the following:

“(a) No interest created in real property held in trust shall be void by reason of the common-law rule against perpetuities or any common-law rule limiting the duration of noncharitable purpose trusts, and no interest created in personal property held in trust shall be void by reason of any rule, whether the common-law rule against perpetuities, any common-law rule limiting the duration of noncharitable purpose trusts, or otherwise.”

Section 17. Section 1 of this act shall be effective on August 1, 2008, and shall apply to the estates of decedents who die on or after the effective date. Sections 2 through 16 of this act shall be effective on August 1, 2008, and shall apply to trusts whenever created.

Approved June 26, 2008