Colorado Code
Part 9 - Colorado Uniform Trust Decanting Act
§ 15-16-902. Definitions

As used in this part 9, unless the context otherwise requires:

Source: L. 2016: Entire part added, (SB 16-085), ch. 228, p. 869, § 1, effective August 10.
COMMENT
Appointive Property. The definition of "appointive property" is identical to the definition in Section 102(2) of the Uniform Powers of Appointment Act.
Ascertainable Standard . The definition of "ascertainable standard" is similar to the definition found in Section 103(2) of the Uniform Trust Code, but also includes the regulations to the cited sections of the Internal Revenue Code.
A power that is limited to health, education, support or maintenance is limited to an ascertainable standard. Treas. Reg. § 25.2514-1(c)(2). Other powers limited to an ascertainable standard include "support in reasonable comfort," "maintenance in health and reasonable comfort," "support in the beneficiary's accustomed manner of living," "education, including college and professional education" and "medical, dental, hospital and nursing expenses and expenses of invalidism." A power to make distributions for comfort, welfare, happiness or best interests is not limited to an ascertainable standard. In determining whether a power is limited by an ascertainable standard, it is immaterial whether the beneficiary is required to exhaust other income or resources before the power can be exercised.
The entire context of the document should be considered in determining whether the standard is ascertainable. For example, if the trust instrument provides that the determination of the trustee is conclusive with respect to the exercise of the standard, the power is not ascertainable.
A power to make distributions "as the trustee deems advisable" or in the trustee's "sole and absolute discretion" without further limitation is not subject to an ascertainable standard.
The term is also construed by case law regarding Internal Revenue Code Sections 2036 and 2038.
Authorized Fiduciary . The definition of "authorized fiduciary" includes only a person acting in a fiduciary capacity. Only a fiduciary, subject to fiduciary duties, should have the power to decant. A distribution director who is not a fiduciary should not have the power to decant.
The definition excludes a settlor acting as a trustee. If a settlor is a trustee of an irrevocable trust, gift and estate tax problems could result if the settlor had a decanting power. The definition does not exclude a beneficiary who is acting as a trustee (an "interested trustee") because the act only permits a trustee with expanded distributive discretion to decant in a manner that would change beneficial interests. Typically trusts will not give an interested trustee unascertainable discretion over discretionary distributions because such discretion would create gift and estate tax issues. In the unusual event that a trust does give an interested trustee unascertainable discretion, the trustee will incur the tax effects of holding a general power of appointment whether or not the trustee also has a decanting power.
If the discretion to distribute or to direct the trustee to distribute is held jointly by two or more trustees or other fiduciaries, the "authorized fiduciary" is such trustees or other fiduciaries collectively. If the authorized fiduciary is comprised of two or more fiduciaries, the trust instrument or state law will generally provide whether they must act unanimously or whether they may act by majority or some other percentage vote. For example, Section 703(a) of the Uniform Trust Code provides that trustees who are unable to reach unanimous decision may act by majority decision.
The term also includes a special fiduciary appointed by the court under Section 9, who may exercise the decanting power. The term also includes a special-needs fiduciary under Section 15-16-913 even if such fiduciary does not have discretion to distribute principal of the first trust.
Beneficiary . The definition of "beneficiary" in Section 15-16-902(4)(a) and (b) is substantially similar to the definition found in Section 103(3) of the Uniform Trust Code. Section 15-16-902(4)(c) adds as a beneficiary a charitable organization identified to receive distributions from a trust. Cf . Uniform Trust Code § 110(a) and § 405(a). Thus an identified charitable organization has the rights of a beneficiary under this act. Absent Section 15-16-902(4)(c) such charities would not be considered beneficiaries. Because a charitable interest is not created to benefit ascertainable charitable organizations but to benefit the community at large, persons receiving distributions from a charitable interest are not beneficiaries as that term is defined in the Uniform Trust Code. See Uniform Trust Code § 103, Comment.
In addition to living and ascertained individuals, beneficiaries may be unborn or unascertained. The term "beneficiary" includes not only beneficiaries who received their interests under the terms of the trust but also beneficiaries who received their interests by other means, including by assignment, exercise of a power of appointment, resulting trust upon the failure of an interest, gap in a disposition, operation of an antilapse statute upon the predecease of a named beneficiary, or upon termination of the trust. A potential appointee of a power of appointment is not a beneficiary unless a presently exercisable power of appointment has been exercised in favor of such appointee. A person who merely incidentally benefits from the trust is not a beneficiary. See Restatement Third of Trusts § 48.
While the holder of a power of appointment is not considered a trust beneficiary under the common law of trusts, powerholders are classified as beneficiaries under the Uniform Trust Code. Powerholders are included on the principle that their interests are significant enough that they should be afforded the rights of beneficiaries. A power of appointment as used in state trust law and the Uniform Trust Code is as defined in state property law and not federal tax law although there is considerable overlap between the two definitions.
Charitable Interest . The term "charitable interest" includes an interest held by a charitable organization that makes the charitable organization a qualified beneficiary. Section 15-16-902(5). See Section 15-16-902(4)(c) defining the term "beneficiary" to include an identified charitable organization that may or will receive distributions under the terms of a trust. See Section 15-16-902(20) defining a qualified beneficiary.
For example, a trust might provide for a certain amount to be distributed annually to Gentoos Need You, a charitable organization, and permit the trustee to make discretionary distributions of principal to the settlor's descendants. Upon the death of the settlor's last surviving child, $100,000 is to be paid to Gentoos Need You and the remainder to trusts for the settlor's grandchildren. The annuity interest and the remainder interest held by Gentoos Need You are both charitable interests because they are held by an identified charitable organization and make the organization a qualified beneficiary.
The term "charitable interest" also includes an interest that can benefit only charitable organizations and that, if held by an identified charitable organization, would make the charitable organization a qualified beneficiary. Section 15-16-902(5)(b). For example, if the trustee is to distribute $50,000 from the trust each year for ten years to one or more charitable organizations selected by the trustee that protect Antarctica and its wildlife, the trustee also has discretion to distribute income and principal to individual beneficiaries, and at the end of ten years the trustee is to distribute the remainder to the settlor's descendants, the $50,000 annuity is a charitable interest because it may be distributed only to charitable organizations.
As another example, if the trustee may make discretionary principal distributions to the settlor's spouse, and upon the spouse's death is to distribute one-half of the principal to charitable organizations that protect the Arctic and its wildlife, and the other one-half to the settlor's descendants, there is a charitable interest in one-half of the remainder.
The term "charitable interest" also includes an interest devoted solely to charitable purposes, even if the charitable purposes may be carried out directly by the trust rather than through distributions to charitable organizations. Section 15-16-902(5)(c). The act, however, does not apply to a wholly charitable trust. See Section 15-16-903(2).
The term does not include contingent, successor charitable interests that are not equivalent to the interests held by qualified beneficiaries. For example, if a trust permits distributions to Child A, and upon Child A's death the trust distributes to Child A's descendants, or if none, to the settlor's descendants, or if none, to the Manatee Preservation Fund, a charitable organization, and Child A or the settlor has one or more descendants living, the interest of the Manatee Preservation Fund does not make it a qualified beneficiary and therefore its interest is not a charitable interest.
Charitable Organization . The definition of "charitable organization" is based on the definition of "institution" in the Uniform Prudent Management of Institutional Funds Act (Section 2(4)), except that it excludes trusts.
Charitable Purpose . The definition of "charitable purpose" is similar to the definition in Section 405 of the Uniform Trust Code. The definition of "charitable purpose" follows that of Section 28 of the Restatement Third of Trusts and Section 2(1) of the Uniform Prudent Management of Institutional Funds Act. This definition derives from common law and ultimately the English Statute of Charitable Uses, enacted in 1601. A charitable purpose is a nonprofit purpose (and not a purpose for private benefit) that benefits an indefinite class of the public.
The definition includes purposes "beneficial to the community" because that concept is part of the traditional definition of charitable purposes. The definition means purposes considered charitable and not merely beneficial. Many activities and organizations, such as social welfare organizations, cooperative associations, and business entities, benefit the community. Nonetheless, these organizations and the activities they carry on are not charitable within the meaning of the act because their earnings inure to the benefit of private persons such as members or shareholders. Attorney General v. Weymouth Agricultural & Industrial Society, 400 Mass. 475, 479, 509 N.E.2d 1193, 1195 (1987). The definition of charitable has long been limited to those beneficial purposes that fit within one of the other categories of charitable, for example educational, relating to the relief of poverty, or providing some general good such as improvement of the environment. By using the standard definition, the act intends to include the case law that has developed around the term "charitable" in trust law. See the comment to Section 2(2) of the Model Protection of Charitable Assets Act.
Court . The term "court" means the court having jurisdiction in matters related to trusts. The definition should be revised by the enacting state as appropriate.
Current Beneficiary . The term "current beneficiary" means a beneficiary who is currently a distributee or permissible distributee of income or principal. A current beneficiary is a qualified beneficiary described in Section 15-16-902(20)(a). A mere holder of a power of appointment is not a current beneficiary unless the power is a presently exercisable general power of appointment. The term does not include the objects of an unexercised inter vivos power of appointment.
Decanting Power or The Decanting Power . The term "decanting power" or "the decanting power" means the power granted in this act to the authorized fiduciary (see Section 15-16-902(3)) to distribute all or part of the property of the first trust to a second trust or, alternatively, to modify the terms of the first trust to create the second trust. The term does not include any similar power that may be granted under the terms of the trust instrument or pursuant to common law.
If the terms of the first trust are modified, it is not necessary to treat the second trust as a newly created, separate trust, thus avoiding the need to transfer title of the property of the first trust to the second trust. If all of the property of the first trust is distributed pursuant to an exercise of the decanting power to a separate second trust, then the first trust would terminate. The termination of the first trust may impose certain duties on the trustee such as providing reports to the beneficiaries and filing final income tax returns.
Expanded Distributive Discretion . "Expanded distributive discretion" is any discretion that is not limited to an ascertainable standard (see Section 15-16-902(2)) as used in Internal Revenue Code Section 2514(c)(1) or to a reasonably definite standard (see Section 15-16-902(21)) as used in Internal Revenue Code Section 674(b)(5)(A). The tax terms are used here, one from gift tax rules and one from income tax rules, because the definitions of these tax terms are generally clearer than the definitions of nontax terms sometimes used to describe different types of trustee discretion.
First Trust . The terms "first trust" and "second trust" (Section 15-16- 902(23)) are relative to the particular exercise of the decanting power. Thus when the decanting power is exercised over Trust A to make a distribution to Trust B, Trust A is the first trust and Trust B is the second trust with respect to such exercise of the decanting power. If the decanting power is later exercised over Trust B to make a distribution to Trust C, then Trust B would be the first trust and Trust C the second trust with respect to such exercise of the decanting power.
First-Trust Instrument . See Section 15-16-902(12) for the definition of "first trust" and Section 15-16-902(29) for the definition of "trust instrument."
General Power of Appointment . The definition of "general power of appointment" is identical to the definition in Section 102(6) of the Uniform Powers of Appointment Act.
Jurisdiction . The definition of "jurisdiction" is virtually identical to the definition in Section 103(9) of the Uniform Trust Code.
Person . The definition of "person" is identical to the definition of "person" in Section 102(12) of the Uniform Powers of Appointment Act. With one exception, this is the standard definition approved by the Uniform Law Commission. The exception is that the word "trust" has been added to the definition of "person." Trust law in the United States is moving in the direction of viewing the trust as an entity, see Restatement Third of Trusts introductory note to Chapter 21, but does not yet do so. This definition differs slightly in wording, but not in substance, from the definition of "person" used in Section 103(10) of the Uniform Trust Code. The Uniform Trust Code defines "person" as "an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, government; governmental subdivision, agency, or instrumentality; public corporation, or any other legal or commercial entity."
Power of Appointment . The definition of "power of appointment" is identical to the definition in Section 102(13) of the Uniform Powers of Appointment Act.
Powerholder . The definition of "powerholder" is identical to the definition in Section 102(14) of the Uniform Powers of Appointment Act.
Presently Exercisable Power of Appointment . The definition of "presently exercisable power of appointment" is substantially similar to the definition in Section 102(15) of the Uniform Powers of Appointment Act.
Qualified Beneficiary . The definition of "qualified beneficiary" is substantially the same as the definition in Section 103(13) of the Uniform Trust Code. Note, however, that the expanded definition of "beneficiary" in Section 15-16-902(4) includes charitable organizations identified to receive distributions in charitable trusts. Such charitable organizations would be entitled to notice of an exercise of the decanting power under Section 15-16-907.
The qualified beneficiaries consist of the current beneficiaries (see Section 15-16- 902(9)) and the presumptive remainder beneficiaries (see Section 15-16-911(1)(b)).
The holder of a presently exercisable general power of appointment is a qualified beneficiary. A person who would have a presently exercisable general power of appointment if the trust terminated on that date or if the interests of the current beneficiaries terminated on that date without causing the trust to terminate is also a qualified beneficiary. The term does not include the holder of a testamentary general power of appointment or the holder of a nongeneral limited power of appointment. Nor does the term include the objects of an unexercised inter vivos power of appointment.
When a trust has distributees or permissible distributees of trust income or principal who are in more than one generation of the descendants of a person and the trust continues after the deaths of the members of the most senior generation who are included among such distributees, Section 15-16-902(20)(b) should be construed to include the distributees or permissible distributees after the interests of the most senior generation of such distributees terminate and Section 15-16-902(20)(c) would not ordinarily be applicable if there are any current beneficiaries who are not members of the most senior generation. Assume a trust permits discretionary distributions to any of A's descendants, and only terminates if A has no living descendants, in which case it is distributed to B, and A's now living descendants are Child 1, Child 2, Grandchild 1A and Grandchild 1B. The presumptive remainder beneficiaries are Grandchild 1A and Grandchild 1B pursuant to Section 15-16-902(20)(b), and Section 15-16-902(20)(c) should not apply to cause B to be a presumptive remainder beneficiary. On the other hand, if A's then living descendants were limited to Child 1 and Child 2, then B would be the presumptive remainder beneficiary under Section 15-16-902(20)(c), because there is no presumptive remainder beneficiary under Section 15-16-902(20)(b).
Reasonably Definite Standard . "Reasonably definite standard" is defined in Treasury Regulations Section 1.674(b)-1(b)(5). "Reasonably definite standard" includes an ascertainable standard but may also include standards that would not be considered ascertainable standards. A power to distribute principal for the education, support, maintenance, or health of the beneficiary; for the beneficiary's reasonable support and comfort; or to enable the beneficiary to maintain the beneficiary's accustomed standard of living; or to meet an emergency; would be a reasonably definite standard. A power to distribute principal for the pleasure, desire, or happiness of a beneficiary is not a reasonably definite standard. A power to make distributions "as the trustee deems advisable" or in the trustee's "sole and absolute discretion" without further limitation is not a reasonably definite standard. A reasonably definite standard need not require consideration of the needs and circumstances of the beneficiary.
The entire context of a provision of a trust instrument granting a power should be considered in determining whether there is a reasonably definite standard. For example, if a trust instrument provides that the determination of the trustee shall be conclusive with respect to the exercise or nonexercise of a power, the power is not limited by a reasonably definite standard. The fact, however, that the governing instrument is phrased in discretionary terms is not in itself an indication that no reasonably definite standard exists.
Internal Revenue Code Section 674(d) uses the term "reasonably definite external standard." The term "reasonably definite external standard" appears to have the same meaning as "reasonably definite standard." See Treas. Reg. § 1.674(d)-1. The term is also construed by case law regarding Internal Revenue Code Sections 2036 and 2038.
Record . The definition of "record" is identical to the definition in Section 102(16) of the Uniform Powers of Appointment Act. This is a standard definition approved by the Uniform Law Commission.
Second Trust . The definition of "second trust" includes (1) an irrevocable trust already in existence, whether created by the settlor of the first trust or a different settlor, (2) a "restatement" of the first trust which could be executed by the authorized fiduciary or another person as the nominal grantor, (3) the first trust as modified to create the second trust, or (4) a new trust executed by the authorized fiduciary or another person as the nominal settlor for the purpose of decanting. A decanting that is implemented by "restating" or modifying the first trust presumably would not require the issuance of a new tax identification number or the retitling of property or a final income tax return for the trust. A decanting that distributes the property of the first trust to another trust presumably would require that the property be retitled. Further, if the first trust was terminated by reason of the decanting, a final income tax return for the first trust would be required.
Second-Trust Instrument . See Section 15-16-902(23) for the definition of "second trust" and Section 15-16-902(29) for the definition of "trust instrument."
Settlor . The definition of "settlor" generally follows the definition in Section 103(15) of the Uniform Trust Code, but is modified by Section 25 of this act to address the issue of who is the settlor of the second trust after the exercise of the decanting power. When more than one person signs the trust instrument or funds a trust, generally the person funding the trust will be the settlor. See comments to Section 103 of the Uniform Trust Code. Should more than one person contribute to a trust, all of the contributors will ordinarily be treated as settlors in proportion to their respective contributions, regardless of which one signed the trust instrument. Id. A "settlor" includes a testator who creates a testamentary trust.
Sign . The definition of "sign" is the same definition used in Section 2(8) of the Uniform Premarital and Marital Agreements Act.
State . The definition of "state" is virtually identical to the definition in Section 103(17) of the Uniform Trust Code except that it omits the sentence including certain Indian tribes or bands.
Terms of the Trust . The definition of "terms of the trust" is similar to the definition in Section 103(18) of the Uniform Trust Code, including the manifestation of the settlor's intent regarding a trust's provisions as expressed in the trust instrument as may be established by other evidence admissible in a judicial proceeding. The definition in Section 2(28) expands on the definition in the Uniform Trust Code by providing that the terms of the trust may also be established by court order or nonjudicial settlement agreement.
Trust Instrument . The definition of "trust instrument" is substantially similar to the definition in Section 103(19) of the Uniform Trust Code, except that it expressly includes any second trust and clarifies that the trust instrument may only contain some of the terms of the trust. The Uniform Trust Code definition is expanded to make clear that where the second trust is a trust created by the trustee for the purpose of decanting, such instrument is considered to be an "instrument" even though the trustee is not considered to be the settlor of the second trust for all purposes. See Section 15-16- 925. Other terms of the trust may be established by other evidence that would be admissible in a judicial proceeding, or by court order or nonjudicial settlement agreement. See Section 15-16-902(28). If the second trust is created for purposes of decanting, the second-trust instrument may be executed by the authorized fiduciary or another person as the nominal settlor.