PRIOR PRINTER'S NO. 1501 PRINTER'S NO. 1826
No. 1205 Session of 1997
INTRODUCED BY GREENLEAF AND BELL, NOVEMBER 24, 1997
SENATOR GREENLEAF, JUDICIARY, AS AMENDED, MARCH 24, 1998
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 75 <--
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 SEC. <--
2 7501. LEGISLATIVE INTENT.
3 7502. DEFINITIONS.
4 7503. APPLICATION OF CHAPTER.
5 7504. CERTAIN TRUSTEE POWERS NOT EXERCISABLE.
6 7505. JOINT POWERS AND APPOINTMENT OF NONDISQUALIFIED
7 SUBSTITUTED TRUSTEES.
8 7506. CERTAIN POWERS OF BENEFICIARIES NOT EXERCISABLE.
9 § 7501. LEGISLATIVE INTENT.
10 THIS CHAPTER IS ENACTED TO CODIFY, CLARIFY AND CONFIRM
11 CERTAIN EXISTING COMMON LAW PRINCIPLES OF FIDUCIARY AND TRUST
12 LAW RELATING TO CONFLICTS OF INTEREST ON THE PART OF TRUSTEES.
13 § 7201 7502. Definitions. <--
14 The following words and phrases when used in this chapter
15 shall have the meanings given to them in this section unless the
16 context clearly indicates otherwise:
17 "Interested party." Each trustee then serving and each
18 person having an interest in income or principal whom it would
19 be necessary to join as a party in a proceeding for the judicial
20 settlement of a trustee's account or, if such person has not <--
21 attained majority or is otherwise incapacitated, the person's
22 legal representative under applicable law or the person's agent
23 under a durable power of attorney that is sufficient to grant
24 such authority. SETTLEMENT OF A TRUSTEE'S ACCOUNT. THE TERM <--
25 "INTERESTED PARTY" DOES NOT INCLUDE A PERSON WHO HAS NOT
26 ATTAINED MAJORITY OR IS OTHERWISE INCAPACITATED, UNLESS A COURT
27 HAS APPOINTED A GUARDIAN FOR THE PERSON FOR SOME PURPOSE OTHER
28 THAN ACTING UNDER SECTION 7503 (RELATING TO APPLICATION OF
29 CHAPTER) OR AN AGENT HAS BEEN APPOINTED UNDER A DURABLE POWER OF
30 ATTORNEY THAT IS SUFFICIENT TO GRANT AUTHORITY TO ACT UNDER
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1 SECTION 7503.
2 § 7202 7503. Application of chapter. <--
3 (a) General rule.--This chapter shall apply to:
4 (1) Any trust created under a governing instrument
5 executed on or after (the Legislative Reference Bureau shall
6 insert here the date that is 90 days after the effective date
7 of this act), unless the governing instrument expressly
8 provides that this chapter does not apply.
9 (2) Any trust created under a governing instrument
10 executed before (the Legislative Reference Bureau shall
11 insert here the date that is 90 days after the effective date
12 of this act), unless all interested parties affirmatively
13 elect on or before (the Legislative Reference Bureau shall
14 insert here the date that is the third anniversary of the
15 effective date of this act) by a written declaration signed
16 by or on behalf of each interested party and delivered to the
17 trustee, not to be subject to the application of this
18 chapter. In the case of a testamentary trust, the
19 declarations shall be filed with the register in the county
20 in which the will was admitted to probate.
21 (b) Exclusion.--This chapter shall not apply to:
22 (1) Any trust during the time that the trust is
23 revocable or amendable by its settlor.
24 (2) A spouse of a decedent or settlor where the spouse
25 is the trustee of a testamentary or inter vivos trust for
26 which a marital deduction has been allowed.
27 (3) A TRUSTEE WHO POSSESSES IN HIS INDIVIDUAL CAPACITY <--
28 AN UNLIMITED RIGHT TO WITHDRAW THE ENTIRE PRINCIPAL OF THE
29 TRUST OR HAS A GENERAL TESTAMENTARY POWER OF APPOINTMENT OVER
30 THE ENTIRE PRINCIPAL OF THE TRUST.
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1 (3) (4) A trust under a governing instrument that by <--
2 specific reference expressly rejects the application of this
3 chapter.
4 (5) A TRUST CREATED UNDER A GOVERNING INSTRUMENT <--
5 EXECUTED ON OR BEFORE (THE LEGISLATIVE REFERENCE BUREAU SHALL
6 INSERT HERE THE DATE THAT IS 90 DAYS AFTER THE EFFECTIVE DATE
7 OF THIS ACT) IF NO PART OF THE PRINCIPAL OF THE TRUST WOULD
8 BE INCLUDED IN THE GROSS ESTATE OF THE TRUSTEE FOR FEDERAL
9 ESTATE TAX PURPOSES IF THE TRUSTEE HAD DIED ON (THE
10 LEGISLATIVE REFERENCE BUREAU SHALL INSERT HERE THE DATE THAT
11 IS 90 DAYS AFTER THE EFFECTIVE DATE OF THIS ACT) WITHOUT
12 HAVING EXERCISED THE POWER UNDER THE GOVERNING INSTRUMENT TO
13 MAKE DISCRETIONARY DISTRIBUTIONS OF PRINCIPAL OR INCOME TO OR
14 FOR THE BENEFIT OF THE TRUSTEE, THE TRUSTEE'S ESTATE OR THE
15 CREDITORS OF EITHER.
16 § 7203 7504. Certain trustee powers not exercisable. <--
17 (a) General rule.--The following powers conferred by a
18 governing instrument upon a trustee in his or her capacity as a
19 trustee shall not be exercised by that trustee:
20 (1) The power to make discretionary distributions of
21 either principal or income to or for the benefit of the
22 trustee, the trustee's estate or the creditors of either,
23 unless the power is either:
24 (i) limited by an ascertainable standard relating to
25 the trustee's health, education, support or maintenance
26 within the meaning of 26 U.S.C. §§ 2041 (relating to
27 powers of appointment) and 2514 (relating to powers of
28 appointment); or
29 (ii) exercisable by the trustee only in conjunction
30 with another person having a substantial interest in the
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1 property subject to the power which is adverse to the
2 interest of the trustee within the meaning of 26 U.S.C. §
3 2041(b)(1)(C)(ii).
4 (2) The power to make discretionary distributions of
5 either principal or income to satisfy any of the trustee's
6 personal legal obligations for support or other purposes.
7 (3) The power to make discretionary allocations in the
8 trustee's personal favor of receipts or expenses as between
9 income and principal, unless the trustee has no power to
10 enlarge or shift any beneficial interest except as an
11 incidental consequence of the discharge of the trustee's
12 fiduciary duties.
13 (4) The power to exercise any of the powers proscribed
14 in this subsection with regard to an individual other than
15 the trustee to the extent that the individual could exercise
16 a similar prohibited power in connection with a trust that
17 benefits the trustee.
18 (b) Limited exercise of prohibited power.--
19 (1) If a trustee is prohibited by subsection (a)(1) from
20 exercising a power conferred upon the trustee, the trustee
21 nevertheless may exercise that power but shall be limited to
22 distributions for the trustee's health, education, support or
23 maintenance to the extent otherwise permitted by the terms of
24 the trust.
25 (2) Unless otherwise prohibited by the provisions of
26 this section, a trustee may exercise a power described herein
27 in favor of someone other than the trustee, the trustee's
28 estate or the creditors of either.
29 § 7204 7505. Joint powers and appointment of nondisqualified <--
30 substituted trustees.
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1 If a governing instrument contains a power proscribed under
2 section 7203 7504 (relating to certain trustee powers not <--
3 exercisable), the following shall apply:
4 (1) If the power is conferred on two or more trustees,
5 it may be exercised by the trustee or trustees who are not so
6 prohibited as if they were the only trustee or trustees.
7 (2) If there is no trustee in office who can exercise
8 the power as provided in paragraph (1), the court, upon
9 petition and hearing after such notice as it may direct,
10 shall appoint a trustee who is not disqualified and whose
11 term in office shall be as the court directs for the sole
12 purpose of exercising the powers that the other trustees
13 cannot exercise.
14 § 7205 7506. Certain powers of beneficiaries not exercisable. <--
15 (a) General rule.--No beneficiary of a trust in an
16 individual, trustee or other capacity, may appoint or remove and
17 appoint a trustee who is related or subordinate to the
18 beneficiary within the meaning of 26 U.S.C. § 672(c) (relating
19 to definitions and rules) unless:
20 (1) the trustee's discretionary power to make
21 distributions to or for the beneficiary is limited by an
22 ascertainable standard relating to the beneficiary's health,
23 education, support or maintenance within the meaning of 26
24 U.S.C. §§ 2041 (relating to powers of appointment) and 2514
25 (relating to powers of appointment);
26 (2) the trustee's discretionary power may not be
27 exercised to satisfy any of the beneficiary's legal
28 obligations for support or other purposes; and
29 (3) the trustee's discretionary power may not be
30 exercised to grant to the beneficiary a general power to
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1 appoint property of the trust to the beneficiary, the
2 beneficiary's estate or the creditors thereof within the
3 meaning of 26 U.S.C. § 2041.
4 (b) Exception.--This section shall not apply if the
5 appointment of the trustee by the beneficiary may be made only
6 in conjunction with another person having a substantial interest
7 in the property of the trust, subject to the power, which is
8 adverse to the exercise of the power in favor of the beneficiary
9 within the meaning of 26 U.S.C. § 2041(b)(1)(C)(ii), or the
10 appointment is in conformity with a procedure governing
11 appointments approved by the court before (the Legislative
12 Reference Bureau shall insert there the effective date of this
13 act).
14 Section 2. This act shall take effect immediately.
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