(1) (a) Due
to the inherent conflict of interest that exists between a trustee who is a
beneficiary of a trust and other beneficiaries of the trust, any of the following
powers conferred upon a trustee shall not be exercised by such trustee:
(I) To make or cause to be made discretionary distributions of either principal
or income to or for the direct or indirect benefit of such trustee; except that such a
power may be exercised by such trustee to the extent that it may be exercised to
provide for that trustee's health, education, maintenance, or support as described
under sections 2041 and 2514 of the federal Internal Revenue Code of 1986, as
amended;
(II) To make discretionary distributions of either principal or income to satisfy
any legal obligations of such trustee; or
(III) To make or cause to be made discretionary distributions of either
principal or income to or for the direct or indirect benefit of any person who has the
right to remove or replace such trustee; except that such a power may be exercised
by such trustee to the extent that it may be exercised to provide for such person's
health, education, maintenance, or support as described under sections 2041 and
2514 of the federal Internal Revenue Code of 1986, as amended.
(b) Any of the powers prescribed in paragraph (a) of this subsection (1) that
are conferred upon two or more trustees may be exercised by the trustees who are
not so disqualified. If there is no trustee qualified to exercise such powers, any
party in interest, as described in subsection (3) of this section, may apply to a court
of competent jurisdiction to appoint an independent trustee, and such powers may
be exercised by the independent trustee appointed by the court. Subparagraph (I)
of paragraph (a) of this subsection (1) shall not prohibit a trustee from making
payments, including reimbursement of and compensation of such trustee, for the
protection of the trust, or the assets thereof, and for all expenses, losses, and
liabilities incurred in or by the collection, care, administration, or protection of the
trust or the assets thereof.
(2) This section applies to every trust unless the terms of the trust as it may
be amended in accordance with its terms provide expressly to the contrary and
either specifically refer to this section or otherwise clearly demonstrate the intent
that this rule not apply or unless, if the trust is irrevocable, all parties in interest, as
described in subsection (3) of this section, elect affirmatively, in the manner
prescribed in subsection (4) of this section, not to be subject to the application of
this section. Such election shall be made on or before July 1, 1999, or three years
after the date on which the trust becomes irrevocable, whichever occurs later.
(3) For the purpose of subsection (1) or subsection (2) of this section:
(a) If the trust is revocable or amendable and the settlor is not incapacitated,
the party in interest is the settlor.
(b) If the trust is revocable or amendable and the settlor is incapacitated, the
party in interest is the settlor's legal representative under applicable law or the
settlor's agent under a durable power of attorney that is sufficient to grant such
authority.
(c) If the trust is not revocable or amendable, the parties in interest are:
(I) Each trustee then serving;
(II) Each income beneficiary then in existence or, if any such beneficiary has
not attained majority or is otherwise incapacitated, the beneficiary's legal
representative under applicable law or the beneficiary's agent under a durable
power of attorney that is sufficient to grant such authority; and
(III) Each remainder beneficiary then in existence or, if any such remainder
beneficiary has not attained majority or is otherwise incapacitated, the beneficiary's
legal representative under applicable law or the beneficiary's agent under a
durable power of attorney that is sufficient to grant such authority.
(4) The affirmative election required under subsection (2) of this section
shall be made:
(a) If the settlor is not incapacitated and the trust is revocable or amendable,
through a revocation of or an amendment to the trust;
(b) If the settlor is incapacitated and the trust is revocable or amendable,
through a written declaration executed in the manner prescribed for the
acknowledgment of deeds in this state and delivered to the trustee; or
(c) If the trust is not revocable or amendable, through a written declaration
executed in the manner prescribed for the acknowledgment of deeds in this state
and delivered to the trustee.
(5) A person who has the right to remove or to replace a trustee does not
possess nor may that person be deemed to possess, by virtue of having that right,
the powers proscribed in subparagraphs (I), (II), and (III) of paragraph (a) of
subsection (1) of this section of the trustee that is subject to removal or to
replacement.
(6) (a) Subparagraphs (I) and (II) of paragraph (a) of subsection (1) of this
section shall not apply to a trustee with respect to trust property and the income
from such property where such property would, upon the death of such trustee, be
included in the gross estate of such trustee for federal estate tax purposes for any
reason other than the powers proscribed by subparagraphs (I) and (II) of paragraph
(a) of subsection (1) of this section.
(b) Subparagraph (I) of paragraph (a) of subsection (1) of this section shall
not apply to a trustee that may be appointed or removed by a person for whose
benefit the proscribed powers may be exercised to distribute trust property or the
income from such property where such property would, upon the death of such
person, be included in the gross estate of such person for federal estate tax
purposes for any reason other than such powers to appoint or remove such trustee.
(7) The provisions of this section neither create a new cause of action nor
impair any existing cause of action that, in either case, relates to any power
proscribed by subsection (1) of this section that was exercised before July 1, 1996.