Relating to the Iowa trust code, including the creation of directed trusts, the transfer of trust assets into other trusts, and requirements related to notices to beneficiaries

4810. The bill defines “excluded fiduciary” as any fiduciary excluded from exercising certain powers under the instrument which powers may be exercised by the settlor, trust director, trust protector, or other persons designated in the instrument.4809. The bill defines “trust director” as either an investment trust director or a distribution trust director. The bill defines “trust protector” as any person whose appointment as protector is provided for in the instrument.1102 to include “trust director” and any other person designated by the applicable instrument or the trust code.4207 to instead provide for powers to be granted to a trust director or trust protector.4207 to indicate a person’s status as a trust director or trust protector is to be determined by the powers granted to such person, not the title in the trust instrument.4207(3), which stated a person other than a beneficiary who held the power to direct was presumptively a fiduciary and was liable for any loss that resulted from a breach of the person’s fiduciary duty.4213. This new subsection provides that if a trust instrument, or a trust protector authorized by the trust instrument, designates that a notice, accounting, or report may be delivered to the settlor or to a designated representative on behalf of a beneficiary prior to such beneficiary’s 25th birthday, then, to the extent there is no conflict of interest between the representative and the beneficiary, all notices, accountings, and reports served on such representative with respect to such period will have the same effect as if such beneficiary had been served directly. The bill limits a trustee’s decanting ability in several ways. First, decanting is allowed when 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. Second, before exercising the trustee’s discretion to appoint and distribute assets to a second trust, the trustee of the first trust must 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. Third, the bill limits a restricted trustee’s decanting ability.4215(5). The bill provides a restricted trustee is prohibited from decanting the trust if doing so could benefit the restricted trustee as a beneficiary of the first trust, unless the exercise of such authority is limited by an ascertainable standard related to health, education, maintenance, or support. §1396p(d)(4). Fourth, the second trust may only have as beneficiaries one or more of the beneficiaries of the first trust to or for whom a discretionary distribution of income or principal may be made from the first trust, or 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. Fifth, no restricted trustee of the first trust may exercise 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 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 related to health, education, support, or maintenance within the meaning of section 2041(b)(1)(A) or 2514(c)(1) of the Internal Revenue Code. Sixth, in the case of any trust contributions which have been treated as gifts qualifying for the exclusion from gift tax described in section 2503(b) of the Internal Revenue Code, by reason of the application of section 2503(c) of the Internal Revenue Code, the governing instrument for the second trust is to 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. Seventh, the exercise of such authority may not reduce any income interest of any income beneficiary of a charitable remainder trust under section 664 of the Internal Revenue Code, a grantor retained annuity or unitrust trust under section 2702 of the Internal Revenue Code, or a trust for which a marital deduction has been taken for federal tax purposes under section 2056 or 2523 of the Internal Revenue Code, or for state tax purposes under any comparable provision of applicable state law. Eighth, 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. Ninth, the exercise of such authority may not suspend the power to alienate trust property or extend the first trust beyond the permissible period of any rule against perpetuities applicable to the first trust. The bill contains a provision describing the legislative intent of the new decanting section. The new Code section is to be declaratory of the common law of this state, which permits distributions in further trust, and is to be liberally construed to effectuate such intent. In addition, the bill provides that no provision of the new decanting section is to be construed to abridge the right of any trustee who has the power to distribute income or principal. The bill provides that any governing instrument providing for a trust director or trust protector may also provide such trust director or trust protector with some, none, or all of the rights, powers, privileges, benefits, immunities, or authorities available to a trustee under Iowa law or under the governing instrument. The bill also limits the liability of trust directors and trust protectors to no greater than that of a trustee holding or benefiting from the rights, powers, privileges, benefits, immunities, or authority provided or allowed by the governing instrument, unless the governing instrument provides otherwise. The bill places limitations on the liability of an excluded fiduciary. The bill provides an excluded fiduciary is not liable for any loss that results from compliance with a direction of the trust director; any loss that results from a failure to take any action proposed by an excluded fiduciary that requires prior authorization of the trust director if that excluded fiduciary timely sought but failed to obtain that authorization; and any loss that results from any action or inaction of the excluded fiduciary, except for gross negligence or willful misconduct, when the excluded fiduciary is required, pursuant to the trust agreement or any other reason, to assume the role of trust director or trust protector. In terms of other limitations on the liability of an excluded fiduciary, the bill states an excluded fiduciary is relieved of any obligation to review or evaluate any direction from a trust director or to perform investment or suitability reviews, or to make recommendations or evaluations with respect to any investments to the extent the trust director had authority to direct the acquisition, disposition, or retention of the investment. The bill provides if the excluded fiduciary offers recommendations to the trust director, trust protector, or any investment advisor selected by the investment trust director, with respect to any investments, such action may not be deemed to constitute an undertaking by the excluded fiduciary to monitor or otherwise participate in actions within the scope of the trust director’s authority. The bill also relieves the excluded fiduciary from any duty to communicate with, warn, or apprise any beneficiary or third party concerning instances in which the excluded fiduciary may have exercised the excluded fiduciary’s own discretion in a manner different from the manner directed by the trust director or trust protector. The bill provides, absent contrary provisions in the governing instrument, the actions of the excluded fiduciary pertaining to matters within the scope of authority of the trust director or trust protector shall be deemed to be administrative actions taken by the excluded fiduciary solely to allow the excluded fiduciary to perform those duties assigned to the excluded fiduciary under the governing instrument. Pursuant to the bill, such administrative actions shall not be deemed to constitute an undertaking by the excluded fiduciary to monitor, participate, or otherwise take on any fiduciary responsibility for actions within the scope of authority of the trust director or trust protector. In terms of the relationship between excluded fiduciaries and trust protectors, the bill states that if an instrument appoints a trust protector, the excluded fiduciary is not liable for any loss resulting from any action taken upon the trust protector’s direction. The bill sets out that in an action against an excluded fiduciary, the burden to prove the matter by clear and convincing evidence is on the person seeking to hold the excluded fiduciary liable. The bill provides that, upon the incapacity or death of the settlor, an excluded fiduciary may continue to follow the direction of the trust director if the instrument so allows. The bill states the powers of a trust protector are as provided in the governing instrument and may be exercised or not exercised, in the best interests of the beneficiaries as a class, in the sole and absolute discretion of the trust protector. The bill describes actions trust protectors may take, unless the governing instrument states otherwise. The bill also addresses the jurisdiction of Iowa courts over trust directors and trust protectors. The bill states that by accepting an appointment to serve as a trust director or trust protector of a trust that is subject to the laws of this state, the trust director or the trust protector submits to the jurisdiction of the courts of Iowa even if investment advisory agreements or other related agreements provide otherwise.4805, as such powers exist at the time of the signing of a will by a testator or at the time of the signing of a trust instrument by a settlor, to be incorporated in such will or trust instrument, by a clearly expressed intention of a testator of a will or settlor of a trust instrument. The bill permits a person to simultaneously serve as a trust director and a trust protector. The bill states the powers of an investment trust director shall be provided in the trust instrument and may be exercised or not exercised, in the best interests of the beneficiaries as a class, in the sole and absolute discretion of the investment trust director. The bill describes actions investment trust directors may take, unless the governing instrument states otherwise.4215, shall be provided in the trust instrument and may be exercised or not exercised, in the best interests of the beneficiaries as a class, in the sole and absolute discretion of the distribution trust director. The bill indicates that, unless the terms of the document provide otherwise, the distribution trust director is to direct the trustee with regard to all discretionary distributions to beneficiaries.4213.4810 as a new part under subchapter IV in Code chapter 633A.