Colorado Code
Part 9 - Colorado Uniform Trust Decanting Act
§ 15-16-914. Protection of Charitable Interest - Definitions

Source: L. 2016: Entire part added, (SB 16-085), ch. 228, p. 882, § 1, effective August 10.
COMMENT
The Uniform Trust Decanting Act does not permit the decanting of a trust held solely for charitable purposes (a "wholly charitable trust"). See Section 15-16-903(2). While a split interest trust such as a charitable remainder trust or a charitable lead trust is not 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 be no 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.
Other trusts that could be decanted under Sections 15-16-911, 15-16-912 or 15-16-913, however, may contain charitable interests. Section 15-16-914 imposes special protections for charitable interests. When a charitable interest is a "determinable charitable interest," Section 15-16-914 gives the Attorney General (or other official with enforcement authority over charitable interests) the rights of a qualified beneficiary and restricts the ability to decant to change the law governing the trust's administration. Generally, a determinable charitable interest is a charitable interest not subject to fiduciary discretion or any significant contingencies.
Determinable Charitable Interest . An interest must meet three requirements to be a determinable charitable interest. Section 15-16-914(1)(a). First, the interest must be a charitable interest. See Section 15-16-902(5). Determinable charitable interests are a subset of charitable interests. Thus a remote contingent interest cannot be a determinable charitable interest.
Second, a determinable interest must be a right to a mandatory distribution. A mandatory distribution is a right that is not subject to the exercise of discretion. The mandatory distribution may be a right to income, principal or both. A mandatory distribution may be a right to a current distribution, for example, where a charitable organization is entitled to a certain portion of trust principal on a date that has already occurred and the distribution has not yet been made. A mandatory distribution also includes a right to periodic distributions of income, a specific dollar amount or a percentage of value of some or all of the trust property. A mandatory distribution also includes a right to receive an ascertainable part of the trust property currently or on the occurrence of a specified event or after the passage of a specified time.
This requirement would be met, for example, if a trust required the trustee to distribute to charitable organizations or for charitable purposes one-half of the trust's net income annually or, alternatively, one percent of the value of the trust's assets annually. It would also be met if the trustee was required to distribute ten percent of the trust principal to charitable organizations or for charitable purposes ten years after the settlor's death or alternatively upon the death of the settlor's surviving spouse. This requirement would not be met if the charitable distribution was subject to the trustee's discretion.
A mandatory distribution would also include a right of withdrawal held by a charitable organization.
The third and final requirement for a determinable charitable interest is that the charitable interest either must be unconditional or must in all events be held for charitable purposes. Unconditional generally means not subject to the occurrence of a specified event that may not occur. For example, assume the trustee is to distribute $100,000 annually to the Ornithology Institute, a charitable organization, but only if it uses the funds to search for the ivory billed woodpecker, and if it does not so use the funds, to Resurrect Extinct Species, a charitable organization, but only if it uses the funds to recreate the ivory billed woodpecker from genetic material, and if it does not so use the funds, to Woods for Woodpeckers, a charitable organization. The individual interests of Ornithology Institute, Resurrect Extinct Species, and Woods for Woodpeckers are each conditional. The charitable interest to receive $100,000 annually, in the aggregate, meets the third requirement because in all events it will be held for charitable purposes for one of the three charitable organizations.
A charitable interest is conditional (i.e., not an unconditional interest) if the trustee has discretion to make or not make the distribution. For example, if the trustee has discretion to make distributions of income to Manors for Meerkats, a charitable organization, the charitable interest is not unconditional. The charitable interest would not be a determinable charitable interest unless it would in all events be held for charitable purposes. For example, if the trustee was required to distribute all income annually to Manors for Meerkats or to such other charitable organization as the trustee selected for the benefit of wildlife of the Kalahari Desert, the charitable interest is determinable even though the interest of Manors for Meerkats is not unconditional.
A charitable interest, however, would not be conditional merely because the trustee's exercise of discretion in favor of other beneficiaries could affect the charitable interest. For example, if the trustee is required to distribute $200,000 annually to Lonely George Research Fund and has discretion to distribute principal to the settlor's children, the charitable interest is unconditional because so long as there are sufficient funds in the trust the charitable distribution must be made. As another example, assume the trustee had discretion to distribute income and principal to the settlor's children, and upon the death of the surviving child the remainder was to be distributed to Gone with the Wolves, a charitable organization. The interest of Gone with the Wolves is a determinable charitable interest, even though it may be reduced, or even eliminated, by the trustee's exercise of discretion in favor of the settlor's children.
An interest held by a charitable organization is not conditional merely because it is subject to the requirement that the organization be in existence at the time the distribution is to be made. Further, an interest held by a charitable organization is not conditional merely because the organization must qualify as a charitable organization under a particular provision of the Internal Revenue Code, if the organization so qualifies on the date of determination.
For example, assume a trust provides for distributions for the education of the settlor's children and upon the youngest living child attaining age 28 distributes to Whale Whisperers, if it is then in existence and contributions to it qualify for a federal income tax charitable deduction. The interest of Whale Whisperers is unconditional if at the time of the determination Whale Whisperers is in existence and contributions to it qualify for the federal income tax deduction.
Attorney General Rights . Subsection (2) provides that if the first trust contains a determinable charitable interest, the Attorney General (or other official with enforcement authority over charitable interests) may represent the interest and has all the rights of a qualified beneficiary. The Attorney General is entitled to notice under Section 15-16-907(3)(g). The Attorney General may petition the court under Section 15-16-909, consent to a change in the compensation of an authorized fiduciary under Section 15-16- 916 or consent to a change in the identity of the person who may remove or replace the authorized fiduciary under Section 15-16-918.
If the decanting changes the jurisdiction of a trust containing a determinable charitable interest, the Attorney General may block the decanting by objecting, even without petitioning the court, unless the court approves the decanting. Section 15-16- 914(5).
If the determinable charitable interest is held by an identified charitable organization, the organization is a qualified beneficiary, has the rights of a qualified beneficiary and may represent and bind itself. In such a case, either the Attorney General or the organization could consent to a change in the compensation of an authorized fiduciary under Section 15-16-916 or consent to a change in the identity of the person who may remove or replace the authorized fiduciary under Section 15-16-918. If one of the Attorney General or the organization consented, but the other affirmatively objected, the other could petition the court under Section 15-16-909 for a determination.
Preservation of Charitable Interests . Although Section 15-16-914(2) gives the Attorney General the rights of a qualified beneficiary only when a charitable interest is determinable, Section 15-16-914(3) applies to all charitable interests whether or not determinable. If the first trust contains a charitable interest, whether or not determinable, the second trust may not diminish such interest. Section 15-16-914(3)(a). If the interest is held by an identified charitable organization, the second trust may not change the organization. Section 15-16-914(3)(b). If the first-trust instrument sets forth a particular charitable purpose, the second trust may not change the charitable purpose. Section 15-16-914(3)(c). If the first trust imposes certain conditions or restrictions on the charitable gift, the second trust cannot change the conditions or restrictions. Section 15-16-914(3)(d).
If a charitable trust indicates a particular charitable purpose, the exercise of the decanting power may not change the charitable purpose. Section 15-16-914(3)(c). Thus if the first trust provides that upon A's death the remainder will be paid to Companion Animals for the benefit and protection of dogs, the second trust may not change the purpose of the charitable gift to the benefit of cats. As another example, if the first trust provides that upon A's death the remainder will be distributed to such charities as the trustee selects for the purpose of preserving habitat for blue footed boobies, the second trust cannot change the charitable purpose to the protection of polar bears.
If an authorized fiduciary has limited discretion to distribute principal and exercises the decanting power under Section 15-16-912, Section 15-16-912(3) requires that the second trusts must grant each beneficiary of the first trust, including charitable organizations, beneficial interests that are substantially similar to such beneficiary's interests in the first trust. If the first trust contains a charitable interest that is not held by an identified charitable organization, Section 15-16-912(3) does not apply but Section 15-16-914(3) requires that the second trust may not diminish the charitable interest and that any stated charitable purpose must remain the same.
For example, assume a trust permits discretionary income and principal distributions to the settlor's children for their support and health care, requires that the trustee distribute $25,000 each year to one or more charitable organizations selected by the trustee for the purpose of caring for stray, neglected and abused large dogs, gives the trustee discretion to make additional distributions to charitable organizations for the same purpose, and upon the death of the settlor's last surviving child the principal is to be distributed to charitable organizations selected by the trustee for the same purpose. The trustee has limited discretion to distribute principal and therefore may decant under Section 15-16-912, but not Section 15-16-911. The exercise of the decanting power may change administrative provisions and trustee provisions, but may not alter the beneficial interests of the children. Because the charitable interests are not held by an identified charitable organization, they are not subject to Section 15-16-912(3). Section 15-16-914(3), however, requires that the second trust not diminish the charitable interests to the $25,000 annual distributions, to receive discretionary distributions and to the remainder interest. In addition, Section 15-16-914(3) requires that the charitable purpose remain the same. Thus the second trust could not change the charitable purpose to supporting dog parks for small dogs.
If the trust was as described above except that the trustee had discretion to make distributions to the children for their best interests, the trustee could exercise the decanting power under Section 15-16-911. Thus the trustee could eliminate or reduce the interest of one or more of the settlor's children. The decanting could not, however, diminish the charitable interests because Section 15-16-914(3) requires that the charitable interest not be diminished. The trustee could not, for example, grant a power of appointment to a child because such a power would diminish the charitable interests.
If a trust gave the trustee expanded discretion to make distributions to the settlor's children for best interests, and upon the death of the surviving child provided for the remaining assets to be distributed to Howl at the Moon, a charitable organization for the peaceful co-existence of wolves and humans, the authorized fiduciary could not exercise the decanting power to provide that each child would receive an equal share of the trust assets when the youngest child attained age 25, because that would diminish the charitable interest. The authorized fiduciary also could not exercise the decanting power to change the charitable remainder beneficiary from Howl at the Moon to another charitable organization. By contrast, the authorized fiduciary could exercise the decanting power to provide that when the youngest child attained age 25 the trust would be distributed to Howl at the Moon, because that would enhance the charitable interest.
Subsection (3)(d) prohibits altering any condition or restriction related to the charitable interest. For example, if the first trust requires that the trustee consult with certain persons before making distributions or provide reports to certain persons, or gives enforcement rights to certain persons to ensure the charitable purpose is fulfilled, the second trust may not change such provisions.
Some state Attorneys General (or other officials charged with protecting charitable interests) may be concerned that trusts with charitable interests will be moved out of their jurisdiction by decanting. Section 15-16-914(5) addresses this concern by requiring that the second trust be administered under the law of the enacting state unless the court approved the decanting or the Attorney General either approved the decanting or, after receiving notice, failed to object within the notice period.
Subsection (6) makes clear that the Uniform Trust Decanting Act does not limit the powers and duties of the Attorney General under other law of the state, whether statutory or common law. For example, other law of the state may give the Attorney General the right to sue for breach of fiduciary duties with respect to charitable interests.