(1) As used in this section,
unless the context otherwise requires:
(a) Grantor trust means a trust as to which a settlor of a first trust is
considered the owner under 26 U.S.C. secs. 671-677, as amended, or 26 U.S.C. sec.
679, as amended.
(b) Internal revenue code means the federal Internal Revenue Code of
1986, as amended.
(c) Nongrantor trust means a trust that is not a grantor trust.
(d) Qualified benefits property means property subject to the minimum
distribution requirements of 26 U.S.C. sec. 401 (a)(9), as amended, and any
applicable regulations, or to any similar requirements that refer to 26 U.S.C. sec.
401 (a)(9) or the regulations.
(2) An exercise of the decanting power is subject to the following limitations:
(a) If a first trust contains property that qualified, or would have qualified but
for provisions of this part 9 other than this section, for a marital deduction for
purposes of the gift or estate tax under the internal revenue code or a state gift,
estate, or inheritance tax, the second-trust instrument must not include or omit any
term that, if included in or omitted from the trust instrument for the trust to which
the property was transferred, would have prevented the transfer from qualifying for
the deduction, or would have reduced the amount of the deduction, under the same
provisions of the internal revenue code or state law under which the transfer
qualified.
(b) If the first trust contains property that qualified, or would have qualified
but for provisions of this part 9 other than this section, for a charitable deduction
for purposes of the income, gift, or estate tax under the internal revenue code or a
state income, gift, estate, or inheritance tax, the second-trust instrument must not
include or omit any term that, if included in or omitted from the trust instrument for
the trust to which the property was transferred, would have prevented the transfer
from qualifying for the deduction, or would have reduced the amount of the
deduction, under the same provisions of the internal revenue code or state law
under which the transfer qualified.
(c) If the first trust contains property that qualified, or would have qualified
but for provisions of this part 9 other than this section, for the exclusion from the
gift tax described in 26 U.S.C. sec. 2503 (b), as amended, the second-trust
instrument must not include or omit a term that, if included in or omitted from the
trust instrument for the trust to which the property was transferred, would have
prevented the transfer from qualifying under 26 U.S.C. sec. 2503 (b), as amended. If
the first trust contains property that qualified, or would have qualified but for
provisions of this part 9 other than this section, for the exclusion from the gift tax
described in 26 U.S.C. sec. 2503 (b), as amended, by application of 26 U.S.C. sec.
2503 (c), as amended, the second-trust instrument must not include or omit a term
that, if included or omitted from the trust instrument for the trust to which the
property was transferred, would have prevented the transfer from qualifying under
26 U.S.C. sec. 2503 (c), as amended.
(d) If the property of the first trust includes shares of stock in an S
corporation, as defined in 26 U.S.C. sec. 1361, as amended, and the first trust is, or
but for provisions of this part 9 other than this section would be, a permitted
shareholder under any provision of 26 U.S.C. sec. 1361, as amended, an authorized
fiduciary may exercise the power with respect to part or all of the S corporation
stock only if any second trust receiving the stock is a permitted shareholder under
26 U.S.C. sec. 1361 (c)(2), as amended. If the property of the first trust includes
shares of stock in an S corporation and the first trust is, or but for provisions of this
part 9 other than this section would be, a qualified subchapter S trust within the
meaning of 26 U.S.C. sec. 1361 (d), as amended, the second-trust instrument must
not include or omit a term that prevents the second trust from qualifying as a
qualified subchapter S trust.
(e) If the first trust contains property that qualified, or would have qualified
but for provisions of this part 9 other than this section, for a zero inclusion ratio for
purposes of the generation-skipping transfer tax under 26 U.S.C. sec. 2642 (c), as
amended, the second-trust instrument must not include or omit a term that, if
included in or omitted from the first-trust instrument, would have prevented the
transfer to the first trust from qualifying for a zero inclusion ratio under 26 U.S.C.
sec. 2642 (c), as amended.
(f) If the first trust is directly or indirectly the beneficiary of qualified
benefits property, the second-trust instrument may not include or omit any term
that, if included in or omitted from the first-trust instrument, would have increased
the minimum distributions required with respect to the qualified benefits property
under 26 U.S.C. sec. 401 (a)(9), as amended, and any applicable regulations, or any
similar requirements that refer to 26 U.S.C. sec. 401 (a)(9), as amended or the
regulations. If an attempted exercise of the decanting power violates the preceding
sentence, the trustee is deemed to have held the qualified benefits property and
any reinvested distributions of the property as a separate share from the date of
the exercise of the power, and section 15-16-922 applies to the separate share.
(g) If the first trust qualifies as a grantor trust because of the application of
26 U.S.C. sec. 672 (f)(2)(A), as amended, the second trust may not include or omit a
term that, if included in or omitted from the first-trust instrument, would have
prevented the first trust from qualifying under 26 U.S.C. sec. 672 (f)(2)(A), as
amended.
(h) As used in this paragraph (h), unless the context requires otherwise, tax
benefit means a federal or state tax deduction, exemption, exclusion, or other
benefit not otherwise listed in this section, except for a benefit arising from being a
grantor trust. Subject to paragraph (i) of this subsection (2), a second-trust
instrument may not include or omit a term that, if included in or omitted from the
first-trust instrument, would have prevented qualification for a tax benefit if:
(I) The first-trust instrument expressly indicates an intent to qualify for the
benefit or the first-trust instrument clearly is designed to enable the first trust to
qualify for the benefit; and
(II) The transfer of property held by the first trust or the first trust qualified,
or but for provisions of this part 9 other than this section, would have qualified for
the tax benefit.
(i) Subject to paragraph (d) of this subsection (2):
(I) Except as otherwise provided in paragraph (g) of this subsection (2), the
second trust may be a nongrantor trust, even if the first trust is a grantor trust; and
(II) Except as otherwise provided in paragraph (j) of this subsection (2), the
second trust may be a grantor trust, even if the first trust is a nongrantor trust.
(j) An authorized fiduciary may not exercise the decanting power if a settlor
objects in a signed record delivered to the fiduciary within the notice period and:
(I) The first trust and a second trust are both grantor trusts, in whole or in
part, the first trust grants the settlor or another person the power to cause the first
trust to cease to be a grantor trust, and the second trust does not grant an
equivalent power to the settlor or other person; or
(II) The first trust is a nongrantor trust and a second trust is a grantor trust,
in whole or in part, with respect to the settlor, unless:
(A) The settlor has the power at all times to cause the second trust to cease
to be a grantor trust; or
(B) The first-trust instrument contains a provision granting the settlor or
another person a power that would cause the first trust to cease to be a grantor
trust and the second-trust instrument contains the same provision.