2007 Legislation
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SENATE BILL NO. 1057 – Trust, protector/spendthrift


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S1057................................................by JUDICIARY AND RULES
TRUSTS - Amends, repeals and adds to existing law relating to trusts to
define "settlor"; to amend trust protector provisions; to repeal provisions
relating to restrictions on transfers in trust; to set forth provisions
applicable to spendthrift trusts; and to revise provisions applicable to
fraudulent transfers of personalty.
01/29    Senate intro - 1st rdg - to printing
01/30    Rpt prt - to Jud
02/06    Rpt out - rec d/p - to 2nd rdg
02/07    2nd rdg - to 3rd rdg
02/12    3rd rdg - PASSED - 35-0-0
      AYES -- Andreason, Bair, Bastian, Bilyeu, Broadsword, Burkett,
      Cameron, Coiner, Corder, Darrington, Davis, Fulcher, Gannon, Geddes,
      Goedde, Hammond, Heinrich, Hill, Jorgenson, Kelly, Keough, Langhorst,
      Little, Lodge, Malepeai, McGee, McKague, McKenzie, Pearce,
      Richardson, Schroeder, Siddoway, Stegner, Stennett, Werk
      NAYS -- None
      Absent and excused -- None
    Floor Sponsor - Davis
    Title apvd - to House
02/13    House intro - 1st rdg - to Jud
02/28    Rpt out - rec d/p - to 2nd rdg
03/01    2nd rdg - to 3rd rdg
03/06    3rd rdg - PASSED - 67-0-3
      AYES -- Anderson, Andrus, Barrett, Bayer, Bedke, Bell, Bilbao, Black,
      Block, Bock, Boe, Bolz, Brackett, Bradford, Chadderdon, Chavez, Chew,
      Clark, Collins, Crane, Durst, Edmunson, Eskridge, Hagedorn, Hart,
      Harwood, Henbest, Henderson, Jaquet, Killen, King, Kren, Lake,
      LeFavour, Loertscher, Luker, Marriott, Mathews, McGeachin, Mortimer,
      Moyle, Nielsen, Nonini, Pasley-Stuart, Patrick, Pence, Raybould,
      Ring, Roberts, Ruchti, Rusche, Sayler, Schaefer, Shepherd(2),
      Shepherd(8), Shirley, Shively, Smith(30), Snodgrass, Stevenson,
      Thayn, Trail, Vander Woude, Wills, Wood(27), Wood(35), Mr. Speaker
      NAYS -- None
      Absent and excused -- Labrador, Ringo, Smith(24)
    Floor Sponsor - Wills
    Title apvd - to Senate
03/07    To enrol
03/08    Rpt enrol - Pres signed - Sp signed
03/09    To Governor
03/13    Governor signed
         Session Law Chapter 68
         Effective: 07/01/07

Bill Text

  ]]]]              LEGISLATURE OF THE STATE OF IDAHO             ]]]]
 Fifty-ninth Legislature                   First Regular Session - 2007
                                       IN THE SENATE
                                    SENATE BILL NO. 1057
                              BY JUDICIARY AND RULES COMMITTEE
  1                                        AN ACT
 10    Be It Enacted by the Legislature of the State of Idaho:
 11        SECTION 1.  That Section 15-1-201, Idaho Code, be, and the same is  hereby
 12    amended to read as follows:
 13        15-1-201.  GENERAL  DEFINITIONS.  Subject  to  additional definitions con-
 14    tained in the subsequent chapters which are applicable to specific chapters or
 15    parts, and unless the context otherwise requires, in this code:
 16        (1)  "Application" means a written request to the registrar for  an  order
 17    of informal probate or appointment under part 3 of chapter 3 of this code.
 18        (2)  "Augmented  estate"  means  the estate described in section 15-2-202,
 19    Idaho Code.
 20        (3)  "Beneficiary," as it relates to trust beneficiaries, includes a  per-
 21    son  who  has  any  present or future interest, vested or contingent, and also
 22    includes the owner of an interest by assignment or other transfer  and  as  it
 23    relates  to  a  charitable  trust, includes any person entitled to enforce the
 24    trust.
 25        (4)  "Child" includes any individual entitled to take  as  a  child  under
 26    this  code  by  intestate  succession  from  the  parent whose relationship is
 27    involved and excludes any person who is only a stepchild, a  foster  child,  a
 28    grandchild or any more remote descendant.
 29        (5)  "Claims,"  in  respect to estates of decedents and protected persons,
 30    includes liabilities of the decedent or protected person  whether  arising  in
 31    contract,  in  tort or otherwise, and liabilities of the estate which arise at
 32    or after the death of the decedent or after the appointment of a  conservator,
 33    including  funeral  expenses and expenses of administration. The term does not
 34    include estate or inheritance taxes, other tax obligations arising from activ-
 35    ities or transactions of the estate, demands or disputes regarding title of  a
 36    decedent  or protected person to specific assets alleged to be included in the
 37    estate.
 38        (6)  "Community property" is as defined in section 32-906, Idaho Code.
 39        (7)  "Conservator" means a person who is appointed by a  court  to  manage
 40    the  estate  of  a  protected  person  and  includes  limited  conservators as
 41    described by section 15-5-420, Idaho Code.
 42        (8)  "Court" means the court or  branch  having  jurisdiction  in  matters
 43    relating  to the affairs of decedents, minors, incapacitated and disabled per-
  1    sons. This court in this state is known as the district court.
  2        (7)  "Conservator" means a person who is appointed by a  court  to  manage
  3    the  estate  of  a  protected  person  and  includes  limited  conservators as
  4    described by section 15-5-420, Idaho Code.
  5        (89)  "Determination of heirship of community property" shall   mean  that
  6    determination required by the provisions of section 15-3-303, Idaho Code, upon
  7    an application for informal probate not accompanied by presentation of a will.
  8        (910) "Determination  of  heirship" shall mean that determination of heir-
  9    ship required by section 15-3-409, Idaho Code, upon a finding of intestacy.
 10        (101) "Devise," when used as a noun, means a testamentary  disposition  of
 11    real or personal property and when used as a verb, means to dispose of real or
 12    personal property by will.
 13        (112) "Devisee" means any person designated in a will to receive a devise.
 14    In  the  case  of a devise to an existing trust or trustee, or to a trustee or
 15    trust described by will, the trust or trustee is the devisee and  the  benefi-
 16    ciaries are not devisees.
 17        (123) "Disability,"  with  respect  to  an individual, means any mental or
 18    physical impairment which substantially limits one  (1)  or  more  major  life
 19    activities  of the individual including, but not limited to, self-care, manual
 20    tasks, walking, seeing, hearing, speaking, learning, or working, or  a  record
 21    of  such  an  impairment, or being regarded as having such an impairment. Dis-
 22    ability  shall   not   include   transvestism,   transsexualism,   pedophilia,
 23    exhibitionism,  voyeurism,  other  sexual behavior disorders, or substance use
 24    disorders, compulsive gambling, kleptomania, or pyromania.  Sexual  preference
 25    or  orientation  is  not  considered  an  impairment or disability. Whether an
 26    impairment substantially limits a major  life  activity  shall  be  determined
 27    without  consideration of the effect of corrective or mitigating measures used
 28    to reduce the effects of the impairment.
 29        (134) "Distributee" means any person who has received property of a  dece-
 30    dent from his personal representative other than as a creditor or purchaser. A
 31    testamentary trustee is a distributee only to the extent of distributed assets
 32    or  increment  thereto remaining in his hands. A beneficiary of a testamentary
 33    trust to whom the trustee has distributed property received  from  a  personal
 34    representative  is  a distributee of the personal representative. For the pur-
 35    pose of this provision "testamentary  trustee"  includes  a  trustee  to  whom
 36    assets are transferred by will, to the extent of the devised assets.
 37        (145) "Emancipated  minor" shall mean any male or female who has been mar-
 38    ried.
 39        (156) "Estate" means all property of  the  decedent,  including  community
 40    property  of  the  surviving  spouse  subject  to  administration, property of
 41    trusts, and property of any other person whose affairs  are  subject  to  this
 42    code as it exists from time to time during administration.
 43        (167) "Exempt  property"  means that property of a decedent's estate which
 44    is described in section 15-2-403, Idaho Code.
 45        (178) "Fiduciary" includes personal representative, guardian,  conservator
 46    and trustee.
 47        (189) "Foreign personal representative" means a personal representative of
 48    another jurisdiction.
 49        (1920) "Formal  proceedings"  means  those  conducted  before a judge with
 50    notice to interested persons.
 51        (201) "Guardian" means a person who has qualified as a guardian of a minor
 52    or incapacitated person pursuant to  testamentary  or  court  appointment  and
 53    includes  limited  guardians as described by section 15-5-304, Idaho Code, but
 54    excludes one who is merely a guardian ad litem.
 55        (212) "Heirs" means those persons, including the surviving spouse, who are
  1    entitled under the statutes of intestate succession to the property of a dece-
  2    dent.
  3        (223) "Incapacitated person" is as  defined  in  section  15-5-101,  Idaho
  4    Code.
  5        (234) "Informal  proceedings"  means  those  conducted  without  notice to
  6    interested persons by an officer of the court acting as a registrar  for  pro-
  7    bate of a will or appointment of a personal representative.
  8        (245) "Interested  person"  includes  heirs,  devisees, children, spouses,
  9    creditors, beneficiaries and any others having a property right  in  or  claim
 10    against  a  trust estate or the estate of a decedent, ward or protected person
 11    which may be affected by the proceeding. It also includes persons having  pri-
 12    ority for appointment as personal representative, and other fiduciaries repre-
 13    senting  interested  persons.  The meaning as it relates to particular persons
 14    may vary from time to time and must be determined according to the  particular
 15    purposes of, and matter involved in, any proceeding. In a guardianship or con-
 16    servatorship  proceeding,  it  also includes any governmental agency paying or
 17    planning to pay monetary benefits to the ward or protected person and any pub-
 18    lic or charitable agency that regularly concerns itself with methods for  pre-
 19    venting  unnecessary  or overly intrusive court intervention in the affairs of
 20    persons for whom protective orders may be sought and that seeks to participate
 21    in the proceedings.
 22        (256) "Issue" of a person means all his lineal descendants of all  genera-
 23    tions,  with  the  relationship  of  parent and child at each generation being
 24    determined by the definitions of child and parent contained in this code.
 25        (267) "Lease" includes an oil, gas, or other mineral lease.
 26        (278) "Letters" includes letters testamentary,  letters  of  guardianship,
 27    letters of administration, and letters of conservatorship.
 28        (289) "Minor"  means  a  male under eighteen (18) years of age or a female
 29    under eighteen (18) years of age.
 30        (2930) "Mortgage" means any conveyance, agreement or arrangement in  which
 31    property is used as security.
 32        (301) "Nonresident decedent" means a decedent who was domiciled in another
 33    jurisdiction at the time of his death.
 34        (312) "Organization"  includes  a  corporation, government or governmental
 35    subdivision or agency, business trust, estate, trust, partnership or  associa-
 36    tion,  two (2) or more persons having a joint or common interest, or any other
 37    legal entity.
 38        (323) "Parent" includes any person entitled to take, or who would be enti-
 39    tled to take if the child died without a will, as a parent under this code  by
 40    intestate  succession  from  the  child  whose relationship is in question and
 41    excludes any person who is only a stepparent, foster parent, or grandparent.
 42        (334) "Person" means an individual, a corporation, business trust, estate,
 43    trust, partnership, limited liability  company,  association,  joint  venture,
 44    public  corporation,  government, governmental subdivision, agency, or instru-
 45    mentality, or any other legal or commercial entity.
 46        (345) "Personal representative" includes executor, administrator,  succes-
 47    sor  personal  representative,  special administrator, and persons who perform
 48    substantially the same function under the law governing their status. "General
 49    personal representative" excludes special administrator.
 50        (356) "Petition" means a written request to the court for an  order  after
 51    notice.
 52        (367) "Proceeding" includes action at law and suit in equity.
 53        (378) "Property"  includes both real and personal property or any interest
 54    therein and means anything that may be the subject of ownership.
 55        (389) "Protected person" is as defined in section 15-5-101, Idaho Code.
  1        (3940) "Protective proceeding" is as defined in  section  15-5-101,  Idaho
  2    Code.
  3        (401) "Quasi-community  property"  is  the  property  defined  by  section
  4    15-2-201, Idaho Code.
  5        (412) "Registrar"  refers  to  magistrates or judges of the district court
  6    who shall perform the functions of registrar as provided in section  15-1-307,
  7    Idaho Code.
  8        (423) "Security"  includes  any  note, stock, treasury stock, bond, deben-
  9    ture, evidence of indebtedness, certificate of interest or participation in an
 10    oil, gas or mining title or lease or in payments out of production under  such
 11    a  title  or  lease,  collateral trust certificate, transferable share, voting
 12    trust certificate or, in general, any interest or instrument commonly known as
 13    a security, or any certificate of interest or participation, any temporary  or
 14    interim  certificate, receipt or certificate of deposit for, or any warrant or
 15    right to subscribe to or purchase, any of the foregoing.
 16        (434) "Separate property" is as defined in section 32-903, Idaho Code.
 17        (45) "Settlement," in reference to a decedent's estate, includes the  full
 18    process of administration, distribution and closing.
 19        (46) "Settlor" includes grantor, trustor, and words of similar import.
 20        (447) "Special administrator" means a personal representative as described
 21    by sections 15-3-614 through 15-3-618, Idaho Code.
 22        (458) "State"  includes  any  state  of the United States, the District of
 23    Columbia, the Commonwealth of Puerto Rico, and  any  territory  or  possession
 24    subject to the legislative authority of the United States.
 25        (469) "Successor personal representative" means a personal representative,
 26    other  than  a special administrator, who is appointed to succeed a previously
 27    appointed personal representative.
 28        (4750) "Successors" means those persons, other  than  creditors,  who  are
 29    entitled to property of a decedent under his will or this code.
 30        (4851) "Supervised  administration" refers to the proceedings described in
 31    part 5, chapter 3, of this code.
 32        (4952) "Testacy proceeding" means a proceeding  to  establish  a  will  or
 33    determine intestacy.
 34        (503) "Trust"  includes  any  express  trust,  private or charitable, with
 35    additions thereto, wherever and however created. It also includes a trust cre-
 36    ated or determined by judgment or decree under which the trust is to be admin-
 37    istered in the manner of an express trust. "Trust" excludes other constructive
 38    trusts, and it excludes resulting trusts, conservatorships, personal represen-
 39    tatives, trust accounts as defined  in  chapter  6  of  this  code,  custodial
 40    arrangements pursuant to chapter 8, title 68, Idaho Code, business trusts pro-
 41    viding  for  certificates  to  be issued to beneficiaries, common trust funds,
 42    voting trusts, security arrangements, liquidation trusts, and trusts  for  the
 43    primary  purpose  of paying debts, dividends, interest, salaries, wages, prof-
 44    its, pensions, or employee benefits of any kind,  and  any  arrangement  under
 45    which a person is nominee or escrowee for another.
 46        (514) "Trustee"  includes  an  original, additional, or successor trustee,
 47    whether or not appointed or confirmed by court.
 48        (525) "Ward" is as defined in section 15-5-101, Idaho Code.
 49        (536) "Will" is a testamentary instrument and  includes  codicil  and  any
 50    testamentary  instrument  which  merely  appoints  an  executor  or revokes or
 51    revises another will.
 52        (54)  "Separate property" is as defined in section 32-903, Idaho Code.
 53        (55) "Community property" is as defined in section 32-906, Idaho Code.
 54        SECTION 2.  That Section 15-7-501, Idaho Code, be, and the same is  hereby
  1    amended to read as follows:
  2        15-7-501.  TRUST PROTECTOR. (1) Definition of terms:
  3        (a)  "Distribution  trust  advisor"  means a person given authority by the
  4        trust instrument to exercise  all  or  any  portions  of  the  powers  and
  5        discretions set forth in subsection (11) of this section.
  6        (b)  "Excluded  fiduciary"  means  any  fiduciary excluded from exercising
  7        certain powers under the instrument, which powers may be exercised by  the
  8        grantor or a trust advisor or a trust protector.
  9        (bc)  "Fiduciary"  means  a trustee under any testamentary or other trust,
 10        an executor, administrator, or personal  representative  of  a  decedent's
 11        estate,  or  any other party, including a trust advisor or a trust protec-
 12        tor, who is acting in a  fiduciary  capacity  for  any  person,  trust  or
 13        estate.
 14        (cd)  "Instrument"  means  any  revocable  or  irrevocable  trust document
 15        whether created inter vivos or testamentary.
 16        (de)  "Investment tTrust advisor" means a person  given authority  by  the
 17        grantor  of an trust instrument, or other fiduciaries, in which any power,
 18        including the power and authority to direct the acquisition,  disposition,
 19        or  retention of any investment, or the power to authorize any act that an
 20        excluded fiduciary may propose, is reserved to the  exclusion  of  another
 21        fiduciary  also acting under the instrument. "Trust advisor" also includes
 22        any party accepting the delegation of a fiduciary's power  to  direct  the
 23        acquisition, disposition or retention of any investment to exercise all or
 24        any portions of the powers and discretions set forth in subsection (10) of
 25        this section.
 26        (f)  "Trust  advisor"  means a distribution trust advisor or an investment
 27        advisor.
 28        (eg)  "Trust protector" means any disinterested third party whose appoint-
 29        ment is provided for in the trust instrument.
 30        (2)  Liability limits of excluded fiduciary. An excluded fiduciary is  not
 31    liable, either individually or as a fiduciary, for either of the following:
 32        (a)  Any  loss  that results from compliance with a direction of the trust
 33        advisor;
 34        (b)  Any loss that results from a failure to take any action  proposed  by
 35        an  excluded  fiduciary  that  requires a prior authorization of the trust
 36        advisor if that excluded fiduciary timely sought but failed to obtain that
 37        authorization.
 38    Any excluded fiduciary is also relieved from any obligation to perform invest-
 39    ment reviews and make recommendations with respect to any investments  to  the
 40    extent  the trust advisor had authority to direct the acquisition, disposition
 41    or retention of any such investment.
 42        (3)  Death of grantor. An excluded fiduciary may continue  to  follow  the
 43    direction  of the trust advisor upon the incapacity or death of the grantor if
 44    the instrument so allows.
 45        (4)  When trust advisor considered as fiduciary. If one (1) or more  trust
 46    advisors are given authority by the terms of a governing instrument to direct,
 47    consent  to,  or  disapprove  a  fiduciary's investment decisions, or proposed
 48    investment decisions, such trust advisors shall be considered to  be  fiducia-
 49    ries  when  exercising such authority unless the governing instrument provides
 50    otherwise.
 51        (5)  Excluded fiduciary's liability for loss if trust protector appointed.
 52    If an instrument appoints a trust protector, the  excluded  fiduciary  is  not
 53    liable  for  any  loss  resulting  from  any  action  taken  upon  such  trust
 54    protector's direction.
  1        (6)  Powers and discretions of trust protector. The powers and discretions
  2    of a trust protector shall be as provided in the governing instrument and may,
  3    in  the best interests of the trust, be exercised or not exercised in the sole
  4    and absolute discretion of the trust protector and shall  be  binding  on  all
  5    other persons. Such powers and discretion may include the following:
  6        (a)  To modify or amend the trust instrument to achieve favorable tax sta-
  7        tus  or because of changes in the Internal Revenue Code, state law, or the
  8        rulings and regulations thereunder;
  9        (b)  To increase or decrease the interests of  any  beneficiaries  to  the
 10        trust; and
 11        (c)  To modify the terms of any power of appointment granted by the trust.
 12        However,  a  modification or amendment may not grant a beneficial interest
 13        to any individual or class of individuals not  specifically  provided  for
 14        under the trust instrument;
 15        (d)  To terminate the trust;
 16        (e)  To veto or direct trust distributions;
 17        (f)  To change situs or governing law of the trust, or both;
 18        (g)  To appoint a successor trust protector;
 19        (h)  To  interpret  terms  of  the  trust instrument at the request of the
 20        trustee;
 21        (i)  To advise the trustee on matters concerning a beneficiary; and
 22        (j)  To amend or modify the trust instrument to  take  advantage  of  laws
 23        governing restraints on alienation, distribution of trust property, or the
 24        administration of the trust.
 25        (7)  Submission  to court jurisdiction -- Effect on trust advisor or trust
 26    protector. By accepting an appointment to serve as a trust  advisor  or  trust
 27    protector  of  a  trust  that  is subject to the laws of this state, the trust
 28    advisor or the trust protector submits to the jurisdiction of  the  courts  of
 29    Idaho  even if investment advisory agreements or other related agreements pro-
 30    vide otherwise, and the trust advisor or trust protector may be made  a  party
 31    to  any  action  or proceeding if issues relate to a decision or action of the
 32    trust advisor or trust protector.
 33        (8)  Powers of trust protector incorporated by reference in will or  trust
 34    instrument. Any of the powers enumerated in subsection (6) of this section, as
 35    they  exist at the time of the signing of a will by a testator or testatrix or
 36    at the time of the signing of a trust instrument  by  a  trustor  may  be,  by
 37    appropriate  reference  made thereto, incorporated in whole or in part in such
 38    will or trust instrument by a clearly expressed intention  of  a  testator  or
 39    testatrix of a will or trustor of a trust instrument.
 40        (9)  Investment  trust  advisor or distribution trust advisor provided for
 41    in trust instrument. A trust instrument governed by the laws of Idaho may pro-
 42    vide for a person to act as an investment  trust  advisor  or  a  distribution
 43    trust  advisor,  respectively,  with regard to investment decisions or discre-
 44    tionary distributions.
 45        (10) Powers and discretions of investment trust advisor.  The  powers  and
 46    discretions  of  an  investment  trust  advisor shall be provided in the trust
 47    instrument and may be exercised or not exercised, in the best interests of the
 48    trust, in the sole and absolute discretion of the investment trust advisor and
 49    are binding on any other person and any other interested party, fiduciary, and
 50    excluded fiduciary. Unless the terms of the document  provide  otherwise,  the
 51    investment trust advisor has the power to perform the following:
 52        (a)  Direct  the  trustee with respect to the retention, purchase, sale or
 53        encumbrance of trust property and the investment and reinvestment of prin-
 54        cipal and income of the trust;
 55        (b)  Vote proxies for securities held in trust; and
  1        (c)  Select one (1) or more investment advisors, managers  or  counselors,
  2        including the trustee, and delegate to them any of its powers.
  3        (11) Powers  and discretions of distribution trust advisor. The powers and
  4    discretions of a distribution trust advisor shall be  provided  in  the  trust
  5    instrument and may be exercised or not exercised, in the best interests of the
  6    trust,  in  the sole and absolute discretion of the distribution trust advisor
  7    and are binding on any other person and any other interested party, fiduciary,
  8    and excluded fiduciary. Unless the terms of the  document  provide  otherwise,
  9    the  distribution  trust  advisor  shall direct the trustee with regard to all
 10    discretionary distributions to beneficiaries.
 11        SECTION 3.  That Section 15-7-502, Idaho Code, be, and the same is  hereby
 12    repealed.
 13        SECTION 4.  That Part 5, Chapter 7, Title 15, Idaho Code, be, and the same
 14    is  hereby  amended  by the addition thereto of a NEW SECTION, to be known and
 15    designated as Section 15-7-502, Idaho Code, and to read as follows:
 16        15-7-502.  SPENDTHRIFT TRUSTS. (1) A settlor may provide in the  terms  of
 17    the trust that the interest of a beneficiary in the income or in the principal
 18    or  in both may not be voluntarily or involuntarily transferred before payment
 19    or delivery of the interest to the beneficiary by the trustee.
 20        (2)  A declaration in a trust instrument that the interest  of  a  benefi-
 21    ciary shall be held subject to a "spendthrift trust" is sufficient to restrain
 22    voluntary  or  involuntary  alienation of the interest by a beneficiary to the
 23    maximum extent permitted under this section.
 24        (3)  Validity of a restraint on transfer in a  trust  document  shall  not
 25    require  specific  reference  to or identical verbiage set forth in subsection
 26    (1) or (2) of this section.
 27        (4)  If a person is both a settlor and beneficiary of the  same  trust,  a
 28    provision  restraining  the voluntary or involuntary transfer of the settlor's
 29    beneficial interest in such trust does not  prevent  the  settlor's  creditors
 30    from  satisfying  claims  from the settlor's interest in the trust estate that
 31    relates to the portion of the trust that was contributed by the  settlor.  For
 32    the  purposes  of this subsection (4), however, a settlor shall not be consid-
 33    ered to be a beneficiary of an irrevocable trust created by  the  settlor  and
 34    taxed  for  federal income tax purposes pursuant to the grantor trust rules of
 35    the Internal Revenue  Code,  sections  671  through  679,  inclusive,  if  the
 36    settlor's  only  beneficial  interest  in  such trust consists of the right to
 37    receive a distribution from such trust in an amount equal to or less than  the
 38    amount  of  the federal and state income tax liability incurred by the settlor
 39    as a result of such trust being characterized as a grantor trust  pursuant  to
 40    the aforementioned grantor trust rules.
 41        (5)  A beneficiary of a trust shall not be considered a settlor of a trust
 42    merely because of a lapse, waiver or release of:
 43        (a)  A power described in subsection (6) of this section; or
 44        (b)  The  beneficiary's  right to withdraw a part of the trust property to
 45        the extent that the value of the property affected by the lapse, waiver or
 46        release in any calendar year does not exceed the  greater  of  the  amount
 47        specified in:
 48             (i)   Section  2041(b)(2)  or 2514(e) of the Internal Revenue Code of
 49             1986, as amended; or
 50             (ii)  Section 2503(b) of  the  Internal  Revenue  Code  of  1986,  as
 51             amended.
 52        (6)  A  beneficiary  of a trust shall not be considered a settlor, to have
  1    made a voluntary or involuntary transfer of the beneficiary's  interest  in  a
  2    trust, or to have the power to make a voluntary or involuntary transfer of the
  3    beneficiary's  interest  in  the trust, merely because the beneficiary, in any
  4    capacity including, but not limited to, as a trustee, holds or exercises:
  5        (a)  A presently exercisable power to:
  6             (i)   Consume, invade, appropriate or distribute property to  or  for
  7             the  benefit  of  the beneficiary, if the power is either exercisable
  8             only on consent of another person holding an interest adverse to  the
  9             beneficiary's  interest  or  limited  by  an  ascertainable  standing
 10             including,  but not limited to, health, education, support or mainte-
 11             nance of the beneficiary; or
 12             (ii)  Exercise a limited power of  appointment,  as  defined  in  the
 13             Internal Revenue Code of 1986, as amended, including, but not limited
 14             to, the power to appoint any property of the trust to or for the ben-
 15             efit  of a person other than the beneficiary, a creditor of the bene-
 16             ficiary, the beneficiary's estate, or a creditor of the beneficiary's
 17             estate;
 18        (b)  A testamentary power of appointment; or
 19        (c)  A presently exercisable right described in subsection (5)(b) of  this
 20        section.
 21        SECTION  5.  That  Section  55-905, Idaho Code, be, and the same is hereby
 22    amended to read as follows:
 23        55-905.  FRAUDULENT TRANSFERS OF PERSONALTY. All deeds of gift,  all  con-
 24    veyances,  and all transfers or assignments, verbal oral or written, of goods,
 25    chattels, or things in action, made in trust for the use of the person  making
 26    the  same,  are void as against the creditors, existing or subsequent, of such
 27    person. However, a settlor's retained right to receive  distributions  from  a
 28    trust in an amount equal to or less than the federal and state income tax lia-
 29    bility  incurred by such settlor as a result of such trust being characterized
 30    as a grantor trust pursuant to the rules of the Internal Revenue Code of 1986,
 31    as amended, sections 671 through 679, inclusive, shall  not  be  considered  a
 32    deed of gift, conveyance, transfer or assignment that is made in trust for the
 33    use of the person making the same.

Statement of Purpose / Fiscal Impact

                    STATEMENT OF PURPOSE
                          RS 16715
  Section 1   Idaho Code section 15-1-201
  The term "settlor" is often used in the probate code and is
  not defined.  This bill sets forth a definition for such
  Section 2   Idaho Code section 15-7-501
  Trusts that have bifurcated the fiduciary role among
  different trustees are more and more common.  These so
  called directed trustee trust typically provide that one
  fiduciary (a trust advisor which is usually a family member
  or person with a business relationship with the grantor of
  the trust) can direct the other fiduciary (usually an
  institutional trustee) with regard to investment and/or
  distribution needs.  Also the use of a trust protector is
  more common (which is a fiduciary with limited powers to
  make sure the trust is functioning as intended).  Idaho's
  current law does not directly address the authority of a
  trust advisor.  Idaho's current law also does not allow the
  incorporation of the trust protector's powers by reference
  to the Idaho code.  This bill specifically allows and sets
  forth the authority for a trust advisor and expands the
  possible, but not mandatory, powers that a Trust Protector
  can hold and allows a draftsperson to incorporate the
  suggested powers of a Trust Protector into a trust
  instrument by reference without having to specifically note
  each power in the trust instrument.
  Section 4   Idaho Code section 15-7-502
  Idaho law is unclear, with regard to spendthrift trusts, as
  to a creditor's right to invade the trust corpus in the
  situation where: (a) the beneficiary has a so called
  "Crummey" withdrawal right; (b) the beneficiary is also the
  trustee and there are either (i) ascertainable standards as
  to distributions, or (ii) an adverse person must consent to
  the distribution; and (c) the grantor of an irrevocable
  trust who is not a beneficiary thereof retains the power to
  reimbursed for the income taxes the grantor pays on behalf
  of the trust due to the trust being a grantor trust for
  income taxes.  Under each of these scenarios, a creditor of
  the beneficiary in situation (a) and (b) and a subsequent
  creditor of a grantor in situation (c) do not have the right
  to invade the trust corpus.  Other states have addressed
  these issues also in a similar manner.  This bill
  specifically provides that a spendthrift trust does, in
  fact, encompass the above situations.
  Section 5   Idaho Code section 55-905
  Due to the proposed changes to Idaho Code section 15-7-502
  in section 2 above regarding the reimbursement to a grantor
  of an irrevocable trust for the payment of income taxes the
  Grantor paid on behalf of the trust due to such trust's
  grantor trust status, Idaho Code section 55-905 also needs
  clarification so that the two sections are consistent and
  not contrary to one another.  This bill makes consistent
  these two sections.
                        FISCAL NOTE
  This bill will have no fiscal impact.

  Name:  Robert L. Aldridge, Trust & Estate Professionals of
         Idaho, Inc.
  Phone: office: (208) 336-9880  Cell: (208) 631-2481
  STATEMENT OF PURPOSE                                 S 1057