Colorado Code
Part 9 - Colorado Uniform Trust Decanting Act
§ 15-16-903. Scope - Definitions

Source: L. 2016: Entire part added, (SB 16-085), ch. 228, p. 873, § 1, effective August 10.
COMMENT
The Uniform Trust Decanting Act applies to all express trusts that are irrevocable or that are revocable by the settlor only with the consent of the trustee or a person holding an adverse interest. The act does not apply to a trust revocable by the settlor without the consent of the trustee or a person holding an adverse interest, even if the settlor is incapacitated and thus unable to exercise the power to amend or revoke. Thus the act does not apply to a revocable trust as that term is defined in Section 103(14) of the Uniform Trust Code.
Section 5-411(a)(4) of the Uniform Guardianship and Protective Proceedings Act allows a conservator to amend (and revoke) the terms of a protected person's revocable trust. Section 201(a)(1) of the Uniform Power of Attorney Act allows a settlor to grant a power to amend or revoke to an agent. Accordingly, while the settlor is alive, there are uniform rules for modifying a revocable trust. States that have not adopted these uniform rules may have other provisions for modification of a revocable trust when the settlor is incapacitated.
The act does not permit decanting a trust held solely for charitable purposes (a "wholly charitable trust"). Section 15-16-903(2). A private foundation structured as a trust would be a wholly charitable trust that could not be decanted pursuant to the act.
A wholly charitable trust is subject to different public policy concerns than a private trust. Private trusts have identifiable beneficiaries who may enforce their interests in the trust. Charitable trusts have as beneficiaries the community as a whole or charitable organizations, and enforcement may be left to the state's Attorney General or another official. Further, charitable trusts often have particular charitable purposes, and conditions or restrictions on the use of the trust assets. Settlors of wholly charitable trusts often have particularly strong interests in seeing that these purposes, conditions and restrictions are not changed. Special legal doctrines, such as cy pres , are available when it becomes unlawful, impossible, or impracticable to carry out the purposes of a wholly charitable trust.
If an irrevocable trust that has noncharitable beneficiaries will in the future be used to fund a wholly charitable trust, the decanting power may be exercised over the irrevocable trust, subject to Section 15-16-914, but the decanting may not change the terms of the wholly charitable trust.
To the extent a conservation easement or other restricted gift is considered to be an express trust, such an interest would be a wholly charitable trust that could not be decanted pursuant to the act.
While a split interest trust such as a charitable remainder trust or charitable lead trust would not be a wholly charitable trust, in almost all cases the trustee of such a trust would not have discretion to distribute principal to a current beneficiary and therefore there would not be an authorized fiduciary (see Section 15-16-902(3)) who would have authority to exercise the decanting power under Section 15-16-911 or Section 15-16-912.
If an authorized fiduciary has discretion to distribute principal of a trust that is not a wholly charitable trust but that contains a charitable interest (see Section 15-16-902(5)), the charitable interest may not be diminished, the charitable purpose set forth in the first trust may not be changed and any conditions or restrictions on the charitable interest may not be changed. See Section 15-16-914(3).
The Uniform Trust Decanting Act is not the exclusive way to decant a trust and is not the exclusive way to modify a trust. The terms of the trust instrument may grant a fiduciary or other person the power to modify the trust. This act does not supplant any authority granted under such a trust provision. Any such authority granted under the trust instrument does not affect the application of this act unless the trust instrument imposes an express restriction on the exercise of the decanting power under this act or other state statute authorizing a fiduciary to decant. See Section 15-16-915(2).
A decanting statute of another state may apply to a trust and, even if this act could also apply to the trust, this act does not supplant the right of a trustee to decant under the statute of such other state. Thus in some situations a fiduciary may have the option of decanting under this act or the decanting statute of another state.
Common law in some states may permit a trustee to decant. This act does not supplant any right to decant under common law. Thus in some cases a fiduciary may have the option of decanting under this act or under common law.
Section 111 of the Uniform Trust Code and statutes in many states permit certain matters regarding a trust to be resolved by a nonjudicial settlement agreement among the interested persons. Those statutes generally permit certain beneficiaries of a trust to approve an exercise of a power by a trustee and thus would permit certain beneficiaries to approve an exercise of the decanting power. In some cases the modification made by an exercise of the decanting power could also have been made by a virtual representation agreement, and in those cases an exercise of the decanting power sometimes might be combined with a nonjudicial settlement agreement. Generally, the nonjudicial settlement agreement would prevent any subsequent challenges to the decanting. The tax consequences of having the beneficiaries consent to the nonjudicial settlement agreement should be considered.
COLORADO COMMENT
Subsection (6) of C.R.S. § 15-16-903 is not part of the Uniform Trust Decanting Act. That subsection was added to the Colorado version of the uniform act to address the potential interrelationship between a trust decanting and the treatment of a beneficial interest in a trust when a trust beneficiary's marriage is dissolved.