PRINTER'S NO. 1501
No. 1205 Session of 1997
INTRODUCED BY GREENLEAF AND BELL, NOVEMBER 24, 1997
REFERRED TO JUDICIARY, NOVEMBER 24, 1997
AN ACT
1 Amending Title 20 (Decedents, Estates and Fiduciaries) of the
2 Pennsylvania Consolidated Statutes, imposing limits on the
3 exercise of certain trustee powers and the ability of
4 beneficiaries to appoint trustees under certain
5 circumstances.
6 The General Assembly of the Commonwealth of Pennsylvania
7 hereby enacts as follows:
8 Section 1. Title 20 of the Pennsylvania Consolidated
9 Statutes is amended by adding a chapter to read:
10 CHAPTER 72
11 LIMITATIONS ON EXERCISE OF TRUSTEE POWERS
12 AND POWERS OF BENEFICIARIES TO APPOINT TRUSTEES
13 Sec.
14 7201. Definitions.
15 7202. Application of chapter.
16 7203. Certain trustee powers not exercisable.
17 7204. Joint powers and appointment of nondisqualified
18 substituted trustees.
19 7205. Certain powers of beneficiaries not exercisable.
1 § 7201. Definitions.
2 The following words and phrases when used in this chapter
3 shall have the meanings given to them in this section unless the
4 context clearly indicates otherwise:
5 "Interested party." Each trustee then serving and each
6 person having an interest in income or principal whom it would
7 be necessary to join as a party in a proceeding for the judicial
8 settlement of a trustee's account or, if such person has not
9 attained majority or is otherwise incapacitated, the person's
10 legal representative under applicable law or the person's agent
11 under a durable power of attorney that is sufficient to grant
12 such authority.
13 § 7202. Application of chapter.
14 (a) General rule.--This chapter shall apply to:
15 (1) Any trust created under a governing instrument
16 executed on or after (the Legislative Reference Bureau shall
17 insert here the date that is 90 days after the effective date
18 of this act), unless the governing instrument expressly
19 provides that this chapter does not apply.
20 (2) Any trust created under a governing instrument
21 executed before (the Legislative Reference Bureau shall
22 insert here the date that is 90 days after the effective date
23 of this act), unless all interested parties affirmatively
24 elect on or before (the Legislative Reference Bureau shall
25 insert here the date that is the third anniversary of the
26 effective date of this act) by a written declaration signed
27 by or on behalf of each interested party and delivered to the
28 trustee, not to be subject to the application of this
29 chapter. In the case of a testamentary trust, the
30 declarations shall be filed with the register in the county
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1 in which the will was admitted to probate.
2 (b) Exclusion.--This chapter shall not apply to:
3 (1) Any trust during the time that the trust is
4 revocable or amendable by its settlor.
5 (2) A spouse of a decedent or settlor where the spouse
6 is the trustee of a testamentary or inter vivos trust for
7 which a marital deduction has been allowed.
8 (3) A trust under a governing instrument that by
9 specific reference expressly rejects the application of this
10 chapter.
11 § 7203. Certain trustee powers not exercisable.
12 (a) General rule.--The following powers conferred by a
13 governing instrument upon a trustee in his or her capacity as a
14 trustee shall not be exercised by that trustee:
15 (1) The power to make discretionary distributions of
16 either principal or income to or for the benefit of the
17 trustee, the trustee's estate or the creditors of either,
18 unless the power is either:
19 (i) limited by an ascertainable standard relating to
20 the trustee's health, education, support or maintenance
21 within the meaning of 26 U.S.C. §§ 2041 (relating to
22 powers of appointment) and 2514 (relating to powers of
23 appointment); or
24 (ii) exercisable by the trustee only in conjunction
25 with another person having a substantial interest in the
26 property subject to the power which is adverse to the
27 interest of the trustee within the meaning of 26 U.S.C. §
28 2041(b)(1)(C)(ii).
29 (2) The power to make discretionary distributions of
30 either principal or income to satisfy any of the trustee's
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1 personal legal obligations for support or other purposes.
2 (3) The power to make discretionary allocations in the
3 trustee's personal favor of receipts or expenses as between
4 income and principal, unless the trustee has no power to
5 enlarge or shift any beneficial interest except as an
6 incidental consequence of the discharge of the trustee's
7 fiduciary duties.
8 (4) The power to exercise any of the powers proscribed
9 in this subsection with regard to an individual other than
10 the trustee to the extent that the individual could exercise
11 a similar prohibited power in connection with a trust that
12 benefits the trustee.
13 (b) Limited exercise of prohibited power.--
14 (1) If a trustee is prohibited by subsection (a)(1) from
15 exercising a power conferred upon the trustee, the trustee
16 nevertheless may exercise that power but shall be limited to
17 distributions for the trustee's health, education, support or
18 maintenance to the extent otherwise permitted by the terms of
19 the trust.
20 (2) Unless otherwise prohibited by the provisions of
21 this section, a trustee may exercise a power described herein
22 in favor of someone other than the trustee, the trustee's
23 estate or the creditors of either.
24 § 7204. Joint powers and appointment of nondisqualified
25 substituted trustees.
26 If a governing instrument contains a power proscribed under
27 section 7203 (relating to certain trustee powers not
28 exercisable), the following shall apply:
29 (1) If the power is conferred on two or more trustees,
30 it may be exercised by the trustee or trustees who are not so
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1 prohibited as if they were the only trustee or trustees.
2 (2) If there is no trustee in office who can exercise
3 the power as provided in paragraph (1), the court, upon
4 petition and hearing after such notice as it may direct,
5 shall appoint a trustee who is not disqualified and whose
6 term in office shall be as the court directs for the sole
7 purpose of exercising the powers that the other trustees
8 cannot exercise.
9 § 7205. Certain powers of beneficiaries not exercisable.
10 (a) General rule.--No beneficiary of a trust in an
11 individual, trustee or other capacity, may appoint or remove and
12 appoint a trustee who is related or subordinate to the
13 beneficiary within the meaning of 26 U.S.C. § 672(c) (relating
14 to definitions and rules) unless:
15 (1) the trustee's discretionary power to make
16 distributions to or for the beneficiary is limited by an
17 ascertainable standard relating to the beneficiary's health,
18 education, support or maintenance within the meaning of 26
19 U.S.C. §§ 2041 (relating to powers of appointment) and 2514
20 (relating to powers of appointment);
21 (2) the trustee's discretionary power may not be
22 exercised to satisfy any of the beneficiary's legal
23 obligations for support or other purposes; and
24 (3) the trustee's discretionary power may not be
25 exercised to grant to the beneficiary a general power to
26 appoint property of the trust to the beneficiary, the
27 beneficiary's estate or the creditors thereof within the
28 meaning of 26 U.S.C. § 2041.
29 (b) Exception.--This section shall not apply if the
30 appointment of the trustee by the beneficiary may be made only
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1 in conjunction with another person having a substantial interest
2 in the property of the trust, subject to the power, which is
3 adverse to the exercise of the power in favor of the beneficiary
4 within the meaning of 26 U.S.C. § 2041(b)(1)(C)(ii), or the
5 appointment is in conformity with a procedure governing
6 appointments approved by the court before (the Legislative
7 Reference Bureau shall insert there the effective date of this
8 act).
9 Section 2. This act shall take effect immediately.
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