HOUSE BILL 124

52nd legislature - STATE OF NEW MEXICO - first session, 2015

INTRODUCED BY

Zachary J. Cook

AN ACT

RELATING TO TRUSTS; ENACTING NEW SECTIONS OF THE UNIFORM TRUST CODE; PROVIDING FOR THE APPOINTMENT OF TRUST ASSETS BETWEEN TRUSTS; SETTING CONDITIONS AND LIMITATIONS ON THE APPOINTMENT OF ASSETS BETWEEN TRUSTS; PROVIDING FOR NOTICE OF APPOINTMENTS BETWEEN TRUSTS.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF NEW MEXICO:

     SECTION 1. A new Section 46A-8-818 NMSA 1978 is enacted to read:

     "46A-8-818. [NEW MATERIAL] TRUSTEE AUTHORIZATION-- RESTRICTIONS--POWER TO APPOINT.--

          A. Unless the terms of the trust instrument expressly provide otherwise, if a trustee has discretion under the terms of a trust instrument to make a distribution of income or principal to or for the benefit of one or more beneficiaries of a trust, whether or not a distribution is subject to any distribution standard, including but not limited to an ascertainable standard, then the trustee, independently or with court approval, may exercise that discretion by appointing part or all of the income or principal subject to the discretion in favor of a trustee of a second trust under a trust instrument separate from the trust instrument of the first trust. Before exercising its discretion to appoint and distribute assets to a second trust, the trustee of the first trust shall determine whether the appointment is necessary or desirable after taking into account the purposes of the first trust, the terms and conditions of the second trust and the consequences of the distribution.

          B. For the purposes of this section, a trustee of the first trust is a restricted trustee if either the trustee is a beneficiary of the first trust or if a beneficiary of the first trust has a power to change the trustees as provided in Section 46A-8-822 NMSA 1978.

          C. The following apply to all appointments made under this section:

                (1) the second trust may only have as beneficiaries one or more of the beneficiaries of the first trust:

                     (a) to or for whom a discretionary distribution of income or principal may be made from the first trust;

                     (b) to or for whom a distribution of income or principal may be made in the future from the first trust at a time or upon the happening of an event specified under the first trust; or

                     (c) to or for whom the provisions of both Subparagraphs (a) and (b) of this paragraph apply;

                (2) no restricted trustee of the first trust may exercise authority over the first trust to the extent that doing so could have the effect of:

                     (a) benefiting the restricted trustee as a beneficiary of the first trust, unless the exercise of that authority is limited by an ascertainable standard based on or related to health, education, maintenance or support; or

                     (b) removing restrictions on discretionary distributions to a beneficiary imposed by the trust instrument under which the first trust was created, except that a provision in the second trust that limits distributions by an ascertainable standard based on or related to the health, education, maintenance or support of that beneficiary is permitted, or as to a trust established pursuant to 42 United States Code Section 1396p(d)(4), as amended;

                (3) no restricted trustee of the first trust shall exercise authority over the first trust to the extent that doing so would have the effect of increasing the distributions that can be made from the second trust to the restricted trustee of the first trust or to a beneficiary who may change the trustee of the first trust within the meaning of Section 46A-8-822 NMSA 1978 when compared to the distributions that can be made to that trustee or beneficiary under the first trust, unless the exercise of that authority is limited by an ascertainable standard based on or related to health, education, maintenance or support;

                (4) the provisions of Paragraphs (2) and (3) of this subsection only apply to restrict the authority of a trustee, or a beneficiary who may change the trustee, who is a United States citizen or domiciliary under the Internal Revenue Code of 1986, as amended, or the trust owns property that would be subject to United States estate or gift taxes if owned directly by that trustee or beneficiary;

                (5) in the case of trust contributions that have been trusted as gifts qualifying for the exclusion from gift tax described in Section 2503(b) of the Internal Revenue Code of 1986, as amended, by reason of the application of Section 2503(c) of the Internal Revenue Code of 1986, as amended, the trust instrument for the second trust shall provide that the beneficiary's remainder interest shall vest no later than the date upon which that interest would have vested under the terms of the trust instrument for the first trust;

                (6) the exercise of authority pursuant to this section shall not reduce the income interest of an income beneficiary of the following trusts:

                     (a) a trust for which a marital deduction has been taken for federal tax purposes pursuant to Section 2056 or 2523 of the Internal Revenue Code of 1986, as amended, or for state tax purposes under a comparable provision of applicable state law;

                     (b) a charitable remainder trust under Section 664 of the Internal Revenue Code of 1986, as amended; or

                     (c) a grantor retained annuity or unitrust trust under Section 2702 of the Internal Revenue Code of 1986, as amended;

                (7) the exercise of authority pursuant to this section does not apply to trust property subject to a presently exercisable power of withdrawal held by a trust beneficiary to whom, or for the benefit of whom, the trustee has authority to make distributions, unless after the exercise of that authority the beneficiary's power of withdrawal is unchanged with respect to the trust property;

                (8) the exercise of authority pursuant to this section is not prohibited by a spendthrift clause or by a provision in the trust instrument that prohibits amendment or revocation of the trust;

                (9) an appointment made by a trustee shall be considered a distribution by the trustee pursuant to the trustee's distribution powers and authority; and

                (10) if the trustee's distribution discretion is not subject to a standard, or if the trustee's distribution discretion is subject to a standard that does not create a support interest, then the court may review the trustee's determination or a related appointment.

          D. Notwithstanding the provisions of this section, the trust instrument of the second trust may grant a power of appointment to one or more of the beneficiaries of the second trust who are beneficiaries of the first trust. The power of appointment may include the power to appoint trust property to the holder of the power of appointment, the holder's creditors, the holder's estate, the creditors of the holder's estate or another person, whether or not that person is a trust beneficiary.

          E. This section applies to a trust administered under the laws of New Mexico or to a trust whose governing jurisdiction is transferred to New Mexico."

     SECTION 2. A new Section 46A-8-819 NMSA 1978 is enacted to read:

     "46A-8-819. [NEW MATERIAL] EXERCISE OF POWER TO DISTRIBUTE INCOME OR PRINCIPAL BY WRITTEN INSTRUMENT--NOTICE TO BENEFICIARIES OF FIRST TRUST.--The exercise of the power to distribute the income or principal of the trust pursuant to Section 46A-8-818 NMSA 1978 shall be an instrument in writing, signed and acknowledged by the trustee and filed with the records of the trust. The trustee of the first trust shall notify all beneficiaries of the first trust, in writing, at least twenty days prior to the effective date of the trustee's exercise of the power pursuant to Section 46A-8-818 NMSA 1978. A copy of the proposed exercise of this authority and the second trust agreement shall satisfy this notice provision. For the purpose of this section, "beneficiaries" means those persons who would be entitled to notice and a copy of the first trust instrument pursuant to Section 46A-8-813 NMSA 1978."

     SECTION 3. A new Section 46A-8-820 NMSA 1978 is enacted to read:

     "46A-8-820. [NEW MATERIAL] POWER TO DISTRIBUTE INCOME OR PRINCIPAL.--The exercise of the power to distribute the income or principal of the trust under Section 46A-8-818 NMSA 1978 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."

     SECTION 4. A new Section 46A-8-821 NMSA 1978 is enacted to read:

     "46A-8-821. [NEW MATERIAL] IMPERMISSIBLE USE OF POWER.-- The power pursuant to Section 46A-8-818 shall not be exercised to suspend the power to alienate trust property to extend the first trust beyond the permissible period of a rule against perpetuities applicable to the first trust."

     SECTION 5. A new Section 46A-8-822 NMSA 1978 is enacted to read:

     "46A-8-822. [NEW MATERIAL] CHANGE OF TRUSTEE.--For the purposes of Section 46A-8-818 NMSA 1978, a beneficiary shall have the power to change the trustee if the beneficiary can be named as a trustee or can remove a trustee and replace that trustee with a successor trustee who is a beneficiary or who is related or subordinate, as defined in Section 672 of the Internal Revenue Code of 1986, as amended, to the beneficiary."

     SECTION 6. A new Section 46A-8-823 NMSA 1978 is enacted to read:

     "46A-8-823. [NEW MATERIAL] TRUSTEE'S RIGHTS NOT ABRIDGED.--No provision of Sections 46A-8-818 through 46A-8-822 NMSA 1978 shall be construed to abridge the right of a trustee who has power to distribute income or principal in trust that arises under the common laws of the terms of the first trust."

     SECTION 7. EFFECTIVE DATE.--The effective date of the provisions of this act is July 1, 2015.

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