Unless the terms of the instrument expressly provide otherwise:
(1)A trustee who has authority, under the terms of a testamentary instrument or irrevocable inter vivos trust agreement, to invade the principal of a trust to make distributions to, or for the benefit of, one (1) or more proper objects of the exercise of the power, may instead exercise that authority by appointing all or part of the principal of the trust in favor of a trustee of a second trust if the exercise of that authority:
(A)Does not reduce any income interest of any income beneficiary of the following trusts:
(i)A trust for which a marital deduction has been taken for federal tax purposes under § 2056 or § 2523 of the Internal Revenue Code ( 26 U.S.C. § 2056 or § 2523 ) or for state tax purposes under any comparable Free access — add to your briefcase to read the full text and ask questions with AI
Unless the terms of the instrument expressly provide otherwise: (1) A trustee who has authority, under the terms of a testamentary instrument or irrevocable inter vivos trust agreement, to invade the principal of a trust to make distributions to, or for the benefit of, one (1) or more proper objects of the exercise of the power, may instead exercise that authority by appointing all or part of the principal of the trust in favor of a trustee of a second trust if the exercise of that authority: (A) Does not reduce any income interest of any income beneficiary of the following trusts: (i) A trust for which a marital deduction has been taken for federal tax purposes under § 2056 or § 2523 of the Internal Revenue Code ( 26 U.S.C. § 2056 or § 2523 ) or for state tax purposes under any comparable provision of applicable state law; (ii) A charitable remainder trust under § 664 of the Internal Revenue Code; or (iii) A grantor retained annuity or unitrust trust under § 2702 of the Internal Revenue Code ( 26 U.S.C. § 2702 ); and (B) Is in favor of the proper objects of the exercise of the power; (2) (A) The second trust must have as beneficiaries only one (1) or more of the beneficiaries of the first trust. For distributions made during the settlor's lifetime, the second trust must not accelerate the beneficial interest of a future beneficiary. For distributions made after the settlor's death, the second trust may accelerate the beneficial interest of a future beneficiary; (B) For purposes of this subdivision (2): (i) "Accelerate the beneficial interest" means making a beneficiary eligible to receive distributions of income or principal at a date earlier than the date upon which the beneficiary would otherwise be eligible to receive distributions from the first trust; and (ii) "Future beneficiary" means a beneficiary who is not currently eligible to receive any distributions of income or principal from the first trust, but is eligible to receive a distribution of income or principal from the first trust at a future time or upon the happening of an event specified under the first trust; (3) A trustee who is a beneficiary of the original trust shall not exercise the authority to appoint property of the original trust to a second trust if under the terms of the original trust or pursuant to law governing the administration of the original trust: (A) The trustee does not have discretion to make distributions to itself; (B) The trustee's discretion to make distributions to itself is limited by an ascertainable standard, and under the terms of the second trust, the trustee's discretion to make distributions to itself is not limited by the same ascertainable standard; (C) The trustee's discretion to make distributions to itself can only be exercised with the consent of a co-trustee or a person holding an adverse interest and under the terms of the second trust the trustee's discretion to make distributions to itself is not limited by an ascertainable standard and may be exercised without consent; or (D) The trustee of the original trust does not have discretion to make distributions that will discharge the trustee's legal support obligations but under the second trust the trustee's discretion is not so limited; (4) The exercise of the power to invade the principal of the trust under subdivision (a)(1) must be by an instrument in writing, signed by the trustee, and filed with the records of the trust; (5) The exercise of the power to invade principal of the trust under subdivision (a)(1) must not extend the permissible period of the rule against perpetuities that applies to the trust; (6) This section does not abridge the right of a trustee who has a power of invasion to appoint property in further trust that arises under another statute, common law, or pursuant to the applicable instrument governing the first trust; (7) The exercise of the power to appoint principal under subdivision (a)(1) must be considered an exercise of a power of appointment, other than a power to appoint to the trustee, the trustee's creditors, the trustee's estate, or the creditors of the trustee's estate; (8) (A) A second trust may confer a power of appointment upon a beneficiary of the original trust to whom or for the benefit of whom the trustee has the power to distribute principal of the original trust; (B) The permissible appointees of the power of appointment conferred upon a beneficiary may include persons who are not beneficiaries of the original or second trust; and (C) The power of appointment conferred upon a beneficiary must preclude any exercise that would extend the permissible period of the rule against perpetuities that applies to the trust; (9) If any contribution to the original trust qualified for the annual exclusion under § 2503(b) of the Internal Revenue Code ( 26 U.S.C. § 2503(b) ), the marital deduction under § 2056(a) or § 2523(a) of the Internal Revenue Code ( 26 U.S.C. § 2506(a) or § 2523(a) ), or the charitable deduction under § 170(a), § 642(c), § 2055(a), or § 2522(a) of the Internal Revenue Code ( 26 U.S.C. § 170(a) , § 642(c) , § 2055(a) , or § 2522(a) ), is a direct skip qualifying for treatment under § 2642(c) of the Internal Revenue Code ( 26 U.S.C. § 2642(c) ), or qualified for any other specific tax benefit that would be lost by the existence of the authorized trustee's authority under subdivision (a)(1) for income, gift, estate, or generation-skipping transfer tax purposes under the Internal Revenue Code, then the authorized trustee does not have the power to distribute the principal of a trust pursuant to subdivision (a)(1) in a manner that would prevent the contribution to the original trust from qualifying for or would reduce the exclusion, deduction, or other tax benefit that was originally claimed with respect to that contribution; (10) During any period when the original trust owns stock in a subchapter S corporation, as defined in § 1361(a)(1) of the Internal Revenue Code ( 26 U.S.C. § 1361(a)(1) ), an authorized trustee shall not exercise a power authorized by subdivision (a)(1) to distribute part or all of the stock of the S corporation to a second trust that is not a permitted shareholder under § 1361(c)(2) of the Internal Revenue Code ( 26 U.S.C. § 1361(c)(2) ); (11) This section applies to any trust that is administered in this state; and (12) For purposes of this section: (A) "Original trust" means the trust from which principal is being distributed; and (B) "Second trust" means an original trust after modification or restatement under this section, or a trust to which a distribution of property from an original trust is or may be made under this section; provided, that the exercise of the power to appoint principal under this subsection (a) to a second trust by restatement or modification of the original trust does not require the retitling of property titled to the original trust or a change in a payable on death or beneficiary designation to the original trust, even if the second trust is created by a fiduciary or other person as the nominal settlor.