§ 55-2-15 — Trustee authorized to distribute income or principal from first trust may appoint all or part in favor of trustee of second trust--Restrictions--Power of appointment to beneficiary of second trust.

Unless the terms of the governing instrument expressly provide otherwise, if a trustee has discretion under the terms of a governing instrument to make a distribution of income or principal to or for the benefit of one or more beneficiaries of a trust (the "first trust"), whether or not restricted by any standard, then the trustee, independently or with court approval, may exercise such discretion by appointing part or all of the income or principal subject to the discretion in favor of a trustee of a second trust (the "second trust") under a governing instrument separate from the governing instrument of the first trust. Before exercising the discretion to appoint and distribute assets to a second trust, the trustee of the first trust shall determine whether the appointment is necessary or desirable after taking into account the purposes of the first trust, the terms and conditions of the second trust, and the consequences of the distribution. For the purposes of this section, a trustee of the first trust is a restricted trustee if either the trustee is a beneficiary of the first trust or if a beneficiary of the first trust has a power to change the trustees within the meaning of § 55-2-17 . In addition, the following apply to all appointments made under this section: (1) The second trust may only have as beneficiaries one or more of the beneficiaries of the first trust: (a) To or for whom a discretionary distribution of income or principal may be made from the first trust; (b) To or for whom a distribution of income or principal may be made in the future from the first trust at a time or upon the happening of an event specified under the first trust; or (c) Both subsections (a) and (b); (2) No restricted trustee of the first trust may exercise such authority over the first trust to the extent that doing so could have the effect of: (a) Benefiting the restricted trustee as a beneficiary of the first trust, unless the exercise of such authority is limited by an ascertainable standard based on or related to health, education, maintenance, or support; or (b) Removing restrictions on discretionary distributions to a beneficiary imposed by the governing instrument under which the first trust was created, except that a provision in the second trust, which limits distributions by an ascertainable standard based on or related to the health, education, maintenance, or support of any such beneficiary, is permitted, or to a trust established pursuant to 42 U.S.C. § 1396p(d)(4) (January 1, 2025); (3) No restricted trustee of the first trust may exercise such authority over the first trust to the extent that doing so would have the effect of increasing the distributions that can be made from the second trust to the restricted trustees of the first trust or to a beneficiary who may change the trustees of the first trust within the meaning of § 55-2-17 compared to the distributions that can be made to such trustee or beneficiary, as the case may be, under the first trust, unless the exercise of such authority is limited by an ascertainable standard based on or related to health, education, maintenance, or support; (4) The provisions of subdivisions (2) and (3) only apply to restrict the authority of a trustee if either a trustee, or a beneficiary who may change the trustee, is a United States citizen or domiciliary under the Internal Revenue Code, or the trust owns property that would be subject to United States estate or gift taxes if owned directly by such a person; (5) In the case of any trust contributions that have been treated as gifts qualifying for the exclusion from gift tax described in § 2503(b) of the Internal Revenue Code of 1986, by reason of the application of I.R.C. § 2503(c), the governing instrument for the second trust must provide that the beneficiary's remainder interest shall vest no later than the date upon which such interest would have vested under the terms of the governing instrument for the first trust; (6) The exercise of such authority may not reduce any income interest of any income beneficiary of any of the following trusts: (a) A trust for which a marital deduction has been taken for federal tax purposes under I.R.C. § 2056 or § 2523 or for state tax purposes under any comparable provision of applicable state law; (b) A charitable remainder trust under I.R.C. § 664; or (c) A grantor retained annuity or unitrust trust under I.R.C. § 2702; (7) The exercise of such authority does not apply to trust property subject to a presently exercisable power of withdrawal held by a trust beneficiary to whom, or for the benefit of whom, the trustee has authority to make distributions, unless after the exercise of such authority, the beneficiary's power of withdrawal is unchanged with respect to the trust property; (8) The exercise of such authority is not prohibited by a spendthrift clause or by a provision in the governing instrument that prohibits amendment or revocation of the trust; (9) Any appointment made by a trustee is considered a distribution by the trustee pursuant to the trustee's distribution powers and authority; and (10) If the trustee's distribution discretion is not subject to a standard, or if the trustee's distribution discretion is subject to a standard that does not create a support interest, then the court may review the trustee's determination or any related appointment only pursuant to § 55-1-43 . Any other court review of the trustee's determination or any related appointment may be made only pursuant to § 55-1-42 . Notwithstanding the foregoing provisions of this section, the governing instrument of the second trust may grant a power of appointment to one or more of the beneficiaries of the second trust who are beneficiaries of the first trust. The power of appointment may include the power to appoint trust property to the holder of the power of appointment, the holder's creditors, the holder's estate, the creditors of the holder's estate, or any other person, whether or not the person is a trust beneficiary. A trustee’s power described in this section may be exercised by either an actual distribution of property to one or more second trusts or by modifying the terms of the first trust to create the second trust with or without an actual distribution. If the power is exercised by modifying the terms of the first trust, the trustee may: (1) Treat the second trust created by such modification as a new trust, in which case property of the first trust would be transferred to the second trust; or (2) Treat the second trust as a continuation of the first trust with respect for titling purposes, in which case property of the first trust would not need to be retitled. In the case of an exercise of the power that is structured as a trustee's modification of the first trust, however, notwithstanding § 55-2-18 , the trustee shall provide not less than twenty days advance written notice to the qualified beneficiaries, applying chapter 55-18 , unless the trustee receives written waivers of the notice from the qualified beneficiaries. The trustee's power, which is described in and constrained by this section, remains separate and distinct from trust reformation under §§ 55-3-24 to 55-3-26 , inclusive, or other provisions of law allowing trust modifications. This section applies to any trust administered under the laws of this state, including a trust whose governing jurisdiction is transferred to this state.

Legislative History

SL 2007, ch 281, § 1; SL 2008, ch 257, § 11; SL 2009, ch 252, § 17; SL 2011, ch 212, § 10; SL 2012, ch 233, § 4; SL 2013, ch 239, § 16; SL 2017, ch 204, § 18; SL 2021, ch 207, § 4; SL 2025, ch 196, § 6.