2005 Committee Substitute for HB1020JCS

HOUSE JUDICIARY COMMITTEE SUBSTITUTE FOR

HOUSE BILLS 830 & 1020

47th legislature - STATE OF NEW MEXICO - first session, 2005

AN ACT

RELATING TO TRUSTS; AMENDING AND ENACTING SECTIONS OF THE UNIFORM TRUST CODE.

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

Section 1. Section 46A-1-101 NMSA 1978 (being Laws 2003, Chapter 122, Section 1-101) is amended to read:

"46A-1-101. SHORT TITLE.--[This act] Chapter 46A NMSA 1978 may be cited as the "Uniform Trust Code"."

Section 2. Section 46A-1-103 NMSA 1978 (being Laws 2003, Chapter 122, Section 1-103) is amended to read:

"46A-1-103. DEFINITIONS.--As used in the Uniform Trust Code:

A. "action", with respect to an act of a trustee, includes a failure to act;

B. "ascertainable standard" means a standard relating to an individual's health, education, support or maintenance within the meaning of Subparagraph (A) of Paragraph (1) of Subsection (b) of Section 2041 and Paragraph (1) of Subsection (c) of Section 2514 of the Internal Revenue Code of 1986, as amended;

[B.] C. "beneficiary" means a person that:

(1) has a present or future beneficial interest in a trust, vested or contingent; or

(2) in a capacity other than that of trustee, holds a power of appointment over trust property;

[C.] D. "charitable trust" means a trust or portion of a trust created for a charitable purpose described in Subsection A of Section [4-405 of the Uniform Trust Code] 46A-4-405 NMSA 1978;

[D.] E. "conservator" means a person appointed by the court to administer the estate of a minor or adult individual;

[E.] F. "environmental law" means a federal, state or local law, rule, regulation or ordinance relating to protection of the environment;

[F.] G. "guardian" means a person appointed by the court or a parent to make decisions regarding the support, care, education, health and welfare of a minor or adult person. [The term] "Guardian" does not include a guardian ad litem;

[G.] H. "interests of the beneficiaries" means the beneficial interests provided in the terms of the trust;

[H.] I. "jurisdiction", with respect to a geographic area, includes a state or country;

[I.] J. "person" means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, government, governmental subdivision, agency or instrumentality, public corporation or any other legal or commercial entity;

[J.] K. "power of withdrawal" means an exercisable general power of appointment other than a power:

(1) exercisable by a trustee and limited by an ascertainable standard; or

(2) exercisable by another person only upon consent of the trustee or a person holding an adverse interest;

[K.] L. "property" means anything that may be the subject of ownership, whether real or personal, legal or equitable, or any interest therein;

[L.] M. "qualified beneficiary" means a beneficiary who, on the date the beneficiary's qualification is determined:

(1) is a distributee or permissible distributee of trust income or principal;

(2) would be a distributee or permissible distributee of trust income or principal if the interests of the distributees described in Paragraph (1) of this subsection terminated on that date without causing the trust to terminate; or

(3) would be a distributee or permissible distributee of trust income or principal if the trust terminated on that date;

[M.] N. "revocable", as applied to a trust, means revocable by the settlor without the consent of the trustee or a person holding an adverse interest;

[N.] O. "settlor" means a person, including a testator, who creates or contributes property to a trust. If more than one person creates or contributes property to a trust, each person is a settlor of the portion of the trust property attributable to that person's contribution, except to the extent another person has the power to revoke or withdraw that portion;

[O.] P. "spendthrift provision" means a term of a trust that restrains both voluntary and involuntary transfer of a beneficiary's interest;

[P.] Q. "state" means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands or any territory or insular possession subject to the jurisdiction of the United States. [The term] "State" includes an Indian tribe or band recognized by federal law or formally acknowledged by a state;

[Q.] R. "terms of a trust" means the manifestation of the settlor's intent regarding a trust's provisions as expressed in the trust instrument or as may be established by other evidence that would be admissible in a judicial proceeding;

[R.] S. "trust instrument" means an instrument executed by the settlor that contains terms of the trust, including any amendments thereto; and

[S.] T. "trustee" includes an original trustee, an additional trustee, a successor trustee and a co-trustee."

Section 3. Section 46A-1-105 NMSA 1978 (being Laws 2003, Chapter 122, Section 1-105) is amended to read:

"46A-1-105. DEFAULT AND MANDATORY RULES.--

A. Except as otherwise provided in the terms of the trust, the Uniform Trust Code governs the duties and powers of a trustee, relations among trustees and the rights and interests of a beneficiary.

B. The terms of a trust prevail over any provision of the Uniform Trust Code except:

(1) the requirements for creating a trust;

(2) the duty of a trustee to act in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries;

(3) the requirement that a trust and its terms be for the benefit of its beneficiaries and that the trust have a purpose that is lawful, not contrary to public policy and possible to achieve;

(4) the power of the court to modify or terminate a trust under Sections [4-410 through 4-416 of the Uniform Trust Code] 46A-4-410 through 46A-4-416 NMSA 1978;

(5) the effect of a spendthrift provision and the rights of certain creditors and assignees to reach a trust as provided in Chapter 46A, Article 5 [of the Uniform Trust Code] NMSA 1978;

(6) the power of the court under Section [7-702 of the Uniform Trust Code] 46A-7-702 NMSA 1978 to require, dispense with or modify or terminate a bond;

(7) the power of the court under Subsection B of Section [7-708 of the Uniform Trust Code] 46A-7-708 NMSA 1978 to adjust a trustee's compensation specified in the terms of the trust that is unreasonably low or high;

(8) [except for a qualified beneficiary who has not attained twenty-five years of age] the duty under Paragraphs (2) and (3) of Subsection B of Section [8-813 of the Uniform Trust Code] 46A-8-813 NMSA 1978 to notify qualified beneficiaries of an irrevocable trust who have attained twenty-five years of age of the existence of the trust, of the identity of the trustee and of their right to request reports of the trustee;

(9) the duty under Subsection A of Section [8-813 of the Uniform Trust Code] 46A-8-813 NMSA 1978 to respond to the request of a beneficiary of an irrevocable trust for a trustee's reports and other information reasonably related to the administration of a trust;

(10) the effect of an exculpatory term under Section [10-1007 of the Uniform Trust Code] 46A-10-1007 NMSA 1978;

(11) the rights under Sections [10-1008 through 10-1012 of the Uniform Trust Code] 46A-10-1008 through 46A-10-1012 NMSA 1978 of a person other than a trustee or beneficiary;

(12) periods of limitation for commencing a judicial proceeding;

(13) the power of the court to take such action and exercise such jurisdiction as may be necessary in the interests of justice; and

(14) the subject-matter jurisdiction of the court and venue for commencing a proceeding as provided in Sections [2-203 and 2-204 of the Uniform Trust Code] 46A-2-203 and 46A-2-204 NMSA 1978."

Section 4. Section 46A-1-110 NMSA 1978 (being Laws 2003, Chapter 122, Section 1-110) is amended to read:

"46A-1-110. OTHERS TREATED AS QUALIFIED BENEFICIARIES.--

A. Whenever notice to qualified beneficiaries of a trust is required under the Uniform Trust Code, the trustee must also give notice to any other beneficiary who has sent the trustee a request for notice.

B. A charitable organization expressly designated to receive distributions under the terms of a charitable trust [or a] has the rights of a qualified beneficiary under the Uniform Trust Code if the charitable organization, on the date the charitable organization's qualification is being determined:

(1) is a distributee or permissible distributee of trust income or principal;

(2) would be a distributee or permissible distributee of trust income or principal upon the termination of the interests of other distributees or permissible distributees then receiving or eligible to receive distributions; or

(3) would be a distributee or permissible distributee of trust income or principal if the trust terminated on that date.

C. A person appointed to enforce a trust created for the care of an animal or another noncharitable purpose as provided in Section [4-408 or 4-409 of the Uniform Trust Code] 46A-4-408 or 46A-4-409 NMSA 1978 has the rights of a qualified beneficiary under [that] the Uniform Trust Code.

[C.] D. The attorney general of this state has the rights of a qualified beneficiary with respect to a charitable trust having its principal place of administration in this state."

Section 5. A new section of the Uniform Trust Code, Section 46A-2-204 NMSA 1978, is enacted to read:

"46A-2-204. [NEW MATERIAL] VENUE.--

A. Except as provided in Subsection B of this section, venue for a judicial proceeding involving a trust is in the district court for the county in which the trust's principal place of administration is or will be located or, if the trust is created by will and the estate is not yet closed, in the district court for the county in which the decedent's estate is being administered.

B. If a trust has no trustee, venue for a judicial proceeding for the appointment of a trustee is in the district court for a county in which a beneficiary resides, in which any trust property is located, or if the trust is created by will, in which the decedent's estate was or is being administered."

Section 6. Section 46A-3-301 NMSA 1978 (being Laws 2003, Chapter 122, Section 3-301) is amended to read:

"46A-3-301. REPRESENTATION--BASIC EFFECT.--

A. Notice to a person who may represent and bind another person under [this] Chapter 46A, Article 3 NMSA 1978 has the same effect as if notice were given directly to the other person.

B. The consent of a person who may represent and bind another person under [this] Chapter 46A, Article 3 NMSA 1978 is binding on the person represented unless the person represented objects to the representation before the consent would otherwise have become effective.

C. Except as otherwise provided in Sections [4-411 and 6-602 of the Uniform Trust Code] 46A-4-411 and 46A-6-602 NMSA 1978, a person who under [this] Chapter 46A, Article 3 NMSA 1978 may represent a settlor who lacks capacity may receive notice and give a binding consent on the settlor's behalf.

D. A settlor may not represent or bind a beneficiary under Chapter 46A, Article 3 NMSA 1978 with respect to the termination or modification of a trust under Subsection A of Section 46A-4-411 NMSA 1978."

Section 7. Section 46A-4-411 NMSA 1978 (being Laws 2003, Chapter 122, Section 4-411) is amended to read:

"46A-4-411. MODIFICATION OR TERMINATION OF NONCHARITABLE IRREVOCABLE TRUST BY CONSENT.--

A. A noncharitable irrevocable trust may be modified or terminated upon consent of the settlor and all beneficiaries, even if the modification or termination is inconsistent with a material purpose of the trust. A settlor's power to consent to a trust's modification or termination may be exercised by an agent under a power of attorney only to the extent expressly authorized by the power of attorney or the terms of the trust; by the settlor's conservator with the approval of the court supervising the conservatorship if an agent is not so authorized; or by the settlor's guardian with the approval of the court supervising the guardianship if an agent is not so authorized and a conservator has not been appointed.

B. A noncharitable irrevocable trust may be terminated upon consent of all of the beneficiaries if the court concludes that continuance of the trust is not necessary to achieve any material purpose of the trust. A noncharitable irrevocable trust may be modified upon consent of all of the beneficiaries if the court concludes that modification is not inconsistent with a material purpose of the trust.

C. A spendthrift provision in the terms of the trust is not presumed to constitute a material purpose of the trust.

D. Upon termination of a trust under Subsection A or B of this section, the trustee shall distribute the trust property as agreed by the beneficiaries.

E. If not all of the beneficiaries consent to a proposed modification or termination of the trust under Subsection A or B of this section, the modification or termination may be approved by the court if the court is satisfied that:

(1) if all of the beneficiaries had consented, the trust could have been modified or terminated under this section; and

(2) the interests of a beneficiary who does not consent will be adequately protected."

Section 8. Section 46A-5-501 NMSA 1978 (being Laws 2003, Chapter 122, Section 5-501) is amended to read:

"46A-5-501. RIGHTS OF BENEFICIARY'S CREDITOR OR ASSIGNEE.--To the extent a beneficiary's interest is not [protected by] subject to a spendthrift provision, the court may authorize a creditor or assignee of the beneficiary to reach the beneficiary's interest by attachment of present or future distributions to or for the benefit of the beneficiary or other means. The court may limit the award to such relief as is appropriate under the circumstances."

Section 9. Section 46A-5-503 NMSA 1978 (being Laws 2003, Chapter 122, Section 5-503) is amended to read:

"46A-5-503. EXCEPTIONS TO SPENDTHRIFT PROVISION.--

A. As used in this section, "child" includes any person for whom an order or judgment for child support has been entered in this or another state.

[B. Even if a trust contains a spendthrift provision, a beneficiary's child, spouse or former spouse who has a judgment or court order against the beneficiary for support or maintenance, or a judgment creditor who has provided services for the protection of a beneficiary's interest in the trust, may obtain from a court an order attaching present or future distributions to or for the benefit of the beneficiary.

C. A spendthrift provision is unenforceable against a claim of this state or the United States to the extent a statute of this state or federal law so provides.]

B. A spendthrift provision is unenforceable against:

(1) a beneficiary's child, spouse or former spouse who has a judgment or court order against the beneficiary for support or maintenance;

(2) a judgment creditor who has provided services for the protection of a beneficiary's interest in the trust; and

(3) a claim of this state or the United States to the extent a statute of this state or federal law so provides.

C. A claimant against whom a spendthrift provision cannot be enforced may obtain from a court an order attaching present or future distributions to or for the benefit of the beneficiary. The court may limit the award to such relief as is appropriate under the circumstances."

Section 10. Section 46A-5-504 NMSA 1978 (being Laws 2003, Chapter 122, Section 5-504) is amended to read:

"46A-5-504. DISCRETIONARY TRUSTS--EFFECT OF

STANDARD.--

A. As used in this section, "child" includes any person for whom an order or judgment for child support has been entered in this or another state.

B. Except as otherwise provided in Subsection C of this section, whether or not a trust contains a spendthrift provision, a creditor of a beneficiary may not compel a distribution that is subject to the trustee's discretion, even if:

(1) the discretion is expressed in the form of a standard of distribution; or

(2) the trustee has abused the discretion.

C. To the extent a trustee has not complied with a standard of distribution or has abused a discretion:

(1) a distribution may be ordered by the court to satisfy a judgment or court order against the beneficiary for support or maintenance of the beneficiary's child, spouse or former spouse; and

(2) the court shall direct the trustee to pay to the child, spouse or former spouse such amount as is equitable under the circumstances but not more than the amount the trustee would have been required to distribute to or for the benefit of the beneficiary had the trustee complied with the standard or not abused the discretion.

D. This section does not limit the right of a beneficiary to maintain a judicial proceeding against a trustee for an abuse of discretion or failure to comply with a standard for distribution.

E. A creditor may not reach the interest of a beneficiary who is also a trustee or co-trustee, or otherwise compel a distribution, if the trustee's discretion to make distributions for the trustee's own benefit is limited by an ascertainable standard."

Section 11. Section 46A-5-506 NMSA 1978 (being Laws 2003, Chapter 122, Section 5-506) is amended to read:

"46A-5-506. OVERDUE DISTRIBUTION.--

A. Whether or not a trust contains a spendthrift provision, a creditor or assignee of a beneficiary may reach a mandatory distribution of income or principal, including a distribution upon termination of the trust, if the trustee has not made the distribution to the beneficiary within a reasonable time after the designated distribution date.

B. As used in this section, "mandatory distribution" means a distribution of income or principal that the trustee is required to make to a beneficiary under the terms of the trust, including a distribution upon termination of the trust. "Mandatory distribution" excludes a distribution subject to the exercise of the trustee's discretion regardless of whether the terms of the trust:

(1) include a support or other standard to guide the trustee in making distribution decisions; or

(2) provide that the trustee "may" or "shall" make discretionary distributions, including distributions pursuant to a support or other standard."

Section 12. Section 46A-6-602 NMSA 1978 (being Laws 2003, Chapter 122, Section 6-602) is amended to read:

"46A-6-602. REVOCATION OR AMENDMENT OF REVOCABLE TRUST.--

A. Unless the terms of a trust expressly provide that the trust is irrevocable, the settlor may revoke or amend the trust. This subsection does not apply to a trust created under an instrument executed before the effective date of the Uniform Trust Code.

B. If a revocable trust is created or funded by more than one settlor:

(1) to the extent the trust consists of community property, the trust may be revoked by either spouse acting alone but may be amended only by joint action of both spouses; [and]

(2) to the extent the trust consists of property other than community property, each settlor may revoke or amend the trust with regard to the portion of the trust property attributable to that settlor's contribution; and

(3) upon the revocation or amendment of the trust by fewer than all of the settlors, the trustee shall promptly notify the other settlors of the revocation or amendment.

C. The settlor may revoke or amend a revocable trust:

(1) by substantial compliance with a method provided in the terms of the trust; or

(2) if the terms of the trust do not provide a method or the method provided in the terms is not expressly made exclusive, by:

(a) a later will or codicil that expressly refers to the trust or specifically devises property that would otherwise have passed according to the terms of the trust; or

(b) any other method manifesting clear and convincing evidence of the settlor's intent.

D. Upon revocation of a revocable trust, the trustee shall deliver the trust property as the settlor directs.

E. A settlor's powers with respect to revocation, amendment or distribution of trust property may be exercised by an agent under a power of attorney only to the extent expressly authorized by the terms of the trust or the power.

F. A conservator of the settlor or, if no conservator has been appointed, a guardian of the settlor may exercise a settlor's powers with respect to revocation, amendment or distribution of trust property only with the approval of the court supervising the conservatorship or guardianship.

G. A trustee who does not know that a trust has been revoked or amended is not liable to the settlor or settlor's successors in interest for distributions made and other actions taken on the assumption that the trust had not been amended or revoked."

Section 13. Section 46A-6-603 NMSA 1978 (being Laws 2003, Chapter 122, Section 6-603) is amended to read:

"46A-6-603. SETTLOR'S POWERS--POWERS OF WITHDRAWAL.--

A. While a trust is revocable and the settlor has capacity to revoke the trust, rights of the beneficiaries are subject to the control of, and the duties of the trustee are owed exclusively to, the settlor.

[B. If a revocable trust has more than one settlor, the duties of the trustee are owed to all of the settlors having capacity to revoke the trust.

C.] B. During the period the power may be exercised, the holder of a power of withdrawal has the rights of a settlor of a revocable trust under this section to the extent of the property subject to the power."

Section 14. Section 46A-8-802 NMSA 1978 (being Laws 2003, Chapter 122, Section 8-802) is amended to read:

"46A-8-802. DUTY OF LOYALTY.--

A. A trustee shall administer the trust solely in the interests of the beneficiaries.

B. Subject to the rights of persons dealing with or assisting the trustee as provided in Section [10-1011 of the Uniform Trust Code] 46A-10-1011 NMSA 1978, a sale, encumbrance or other transaction involving the investment or management of trust property entered into by the trustee for the trustee's own personal account or [which] that is otherwise affected by a conflict between the trustee's fiduciary and personal interests is voidable by a beneficiary affected by the transaction unless:

(1) the transaction was authorized by the terms of the trust;

(2) the transaction was approved by the court;

(3) the beneficiary consented to the trustee's conduct, ratified the transaction or released the trustee in compliance with Section [10-1008 of the Uniform Trust Code] 46A-10-1008 NMSA 1978; or

(4) the transaction involved a contract entered into or claim acquired by the trustee before the person became or contemplated becoming trustee.

C. A sale, encumbrance or other transaction involving the investment or management of trust property is presumed to be affected by a conflict between personal and fiduciary interests if it is entered into by the trustee with:

(1) the trustee's spouse;

(2) the trustee's descendants, siblings, parents or the spouse of any of them;

(3) an agent or attorney of the trustee; or

(4) a corporation or other person or enterprise in which the trustee, or a person that owns a significant interest in the trustee, has an interest that might affect the trustee's best judgment.

D. A transaction between a trustee and a beneficiary that does not concern trust property but that occurs during the existence of the trust or while the trustee retains significant influence over the beneficiary and from which the trustee obtains an advantage is voidable by the beneficiary unless the trustee establishes that the transaction was fair to the beneficiary.

E. A transaction not concerning trust property in which the trustee engages in the trustee's individual capacity involves a conflict between personal and fiduciary interests if the transaction concerns an opportunity properly belonging to the trust.

F. An investment by a trustee in securities of an investment company or investment trust to which the trustee, or its affiliate, provides services in a capacity other than as trustee is not presumed to be affected by a conflict between personal and fiduciary interests if the investment otherwise complies with the Uniform Prudent Investor Act. In addition to its compensation for acting as trustee, the trustee may be compensated by the investment company or investment trust for providing those services out of fees charged to the trust. If the trustee received compensation from the investment company or investment trust for providing investment advisory or investment management services, the trustee at least annually [notifies] shall notify the persons entitled under Section [8-813 of the Uniform Trust Code] 46A-8-813 NMSA 1978 to receive a copy of the trustee's annual report of the rate and method by which [the] that compensation was determined.

G. In voting shares of stock or in exercising powers of control over similar interests in other forms of enterprise, the trustee shall act in the best interests of the beneficiaries. If the trust is the sole owner of a corporation or other form of enterprise, the trustee shall elect or appoint directors or other managers who will manage the corporation or enterprise in the best interests of the beneficiaries.

H. This section does not preclude the following transactions, if fair to the beneficiaries:

(1) an agreement between a trustee and a beneficiary relating to the appointment or compensation of the trustee;

(2) payment of reasonable compensation to the trustee;

(3) a transaction between a trust and another trust, decedent's estate or conservatorship of which the trustee is a fiduciary or in which a beneficiary has an interest;

(4) a deposit of trust money in a regulated financial-service institution operated by the trustee; or

(5) an advance by the trustee of money for the protection of the trust.

I. The court may appoint a special fiduciary to make a decision with respect to any proposed transaction that might violate this section if entered into by the trustee."

Section 15. Section 46A-8-814 NMSA 1978 (being Laws 2003, Chapter 122, Section 8-814) is amended to read:

"46A-8-814. DISCRETIONARY POWERS--TAX SAVINGS.--

A. Notwithstanding the breadth of discretion granted to a trustee in the terms of the trust, including the use of such terms as "absolute", "sole" or "uncontrolled", the trustee shall exercise a discretionary power in good faith and in accordance with the terms and purposes of the trust and the interests of the beneficiaries.

B. Subject to Subsection D of this section, and unless the terms of the trust expressly indicate that a rule in this subsection does not apply:

(1) a person other than a settlor who is a beneficiary and trustee of a trust that confers on the trustee a power to make discretionary distributions to or for the trustee's personal benefit may exercise the power only in accordance with an ascertainable standard [relating to the trustee's individual health, education, support or maintenance within the meaning of Section 2041(b)(1)(A) or 2514(c)(1) of the Internal Revenue Code of 1986, as amended]; and

(2) a trustee may not exercise a power to make discretionary distributions to satisfy a legal obligation of support that the trustee personally owes another person.

C. A power whose exercise is limited or prohibited by Subsection B of this section may be exercised by a majority of the remaining trustees whose exercise of the power is not so limited or prohibited. If the power of all trustees is so limited or prohibited, the court may appoint a special fiduciary with authority to exercise the power.

D. Subsection B of this section does not apply to:

(1) a power held by the settlor's spouse who is the trustee of a trust for which a marital deduction, as defined in Section 2056(b)(5) or [2523(b)(5)] 2523(e) of the Internal Revenue Code of 1986, as amended, was previously allowed;

(2) any trust during any period that the trust may be revoked or amended by its settlor; or

(3) a trust if contributions to the trust qualify for the annual exclusion under Section 2503(c) of the Internal Revenue Code of 1986, as amended."

Section 16. Section 46A-8-815 NMSA 1978 (being Laws 2003, Chapter 122, Section 8-815) is amended to read:

"46A-8-815. GENERAL POWERS OF TRUSTEE.--

A. A trustee, without authorization by the court, may exercise:

(1) powers conferred by the terms of the trust; [or] and

(2) except as limited by the terms of the trust:

(a) all powers over the trust property that an unmarried competent owner has over individually owned property;

(b) any other powers appropriate to achieve the proper investment, management and distribution of the trust property; and

B. The exercise of a power is subject to the fiduciary duties prescribed by [this] Chapter 46A, Article 8 NMSA 1978."

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