EFTA00812591.pdf

BILL NO. 32- THIRTY-SECOND LEGISLATURE OF THE VIRGIN ISLANDS OF THE UNITED STATES To amend Titles 15, 28, and 5, Virgin Islands Code to allow additional protections for trust settlers. beneficiaries, and trustees and other fiduciaries; and for other purposes PROPOSED BY: SECTION 1. Title 15, Virgin Islands Code is amended by adding a new Chapter 69 thereof to read as follows: Chapter 69. Fiduciaries and Trusts Subchapter I. Purpose Trusts, Protection from Creditors, and Other Rules § 1501. Definitions. As used in this subchapter: (1) "Beneficial interest" means only a distribution interest or a remainder interest. A beneficial interest specifically excludes a power of appointment or a power reserved by the settlor; (2) "Distribution beneficiary" means a beneficiary who is an eligible distributee or permissible distributee of trust income or principal; (3) "Distribution interest" means a distribution interest held by a distribution beneficiary. A distribution interest may be a current distribution interest or a future distribution interest. A distribution interest may be classified as a mandatory interest, a support interest, or a discretionary interest; 1 EFTA00812591  (4) "Power of appointment," except as provided in § 1509, means a power, including a withdrawal power as defined in § 1507, to direct the disposition of trust property, but does not include the authority of a trustee to make a distribution to a beneficiary; (5) "Reach," with respect to a distribution interest or power, means to subject the distribution interest or power to a judgment, decree, garnishment, attachment, execution, levy, creditor's bill or other legal, equitable, or administrative process, relief, or control of any court, tribunal, agency, or other entity as provided by law; (6) "Remainder interest" means an interest where a trust beneficiary receives the property outright at some time during the future; (7) "Reserved power" means a power held by the settlor. § 1502. Objects for which trust may be created. Objects of a trust or power may be persons or purposes. A trust may be created for any purpose for which a contract may lawfully be made. § 1503. Trusts for noncharitable purposes. Subject to the provisions of §1504 and §1505, a trust may be performed if the trust is for a specific lawful noncharitable purpose or for lawful noncharitable purposes to be selected by the trustee. Neither the common law rule against perpetuities nor any common law rule limiting the duration of noncharitable purpose trusts may be in force in the Virgin Islands. § 1504. Trust for the care of a designated animal. Subject to the provisions of §1505, a trust for the care of a designated animal is valid. The trust terminates when no living animal is covered by the trust. A governing instrument shall be liberally construed to bring the transfer within this section, to presume against the merely precatory or honorary nature of the disposition, and to carry out the general intent of the transferor. Extrinsic evidence is admissible in determining the transferor's intent. § 1505. Provisions governing trusts for specific purposes selected by trustee and for care of animals. Any trust provided for by §1503 and §1504 is subject to the following provisions: 2 EFTA00812592  (a) Except as expressly provided otherwise in a trust instrument, no portion of the principal or income may be converted to the use of the trustee or to any use other than for the trust's purposes or for the benefit of a covered animal; (b) Upon termination, the trustee shall transfer the unexpended trust property in the following order: (1) As directed in the trust instrument; (2) If the trust was created in a nonresiduary clause in the transferor's will or in a codicil to the transferor's will, then under the residuary clause in the transferor's will; and (3) If no beneficiary results from the application of clause (1) or (2) of this subsection, then to the transferor's heirs-at-law according to the applicable laws of intestate succession; (c) A residuary clause is treated as creating a future interest under the terms of a trust; (d) The intended use of the principal or income may be enforced by a person designated for that purpose in the trust instrument or, if none, by an individual appointed by a court upon application to it by that person; (e) Except as ordered by the court or required by the trust instrument, no filing, report, registration, periodic accounting, separate maintenance of funds, appointment, or fee is required by reason of the existence of the fiduciary relationship of the trustee; (0 A court may reasonably reduce the amount of the property transferred if it determines that that amount substantially exceeds the amount required for the intended use. The amount of the reduction, if any, passes as unexpended trust property under subsection (b) of this section; (g) If no trustee is designated or no designated trustee is willing or able to serve, a court shall name a trustee. A court may order the transfer of the property to another trustee if required to ensure that the intended use is carried out and if no successor trustee is designated in the trust instrument or if no designated successor trustee agrees to serve or is able to serve. A court may also make such other orders and determinations as are advisable to carry out the intent of the transferor and the purpose of §§ 1503 to 1505, inclusive. § 1506. Improper Motive. For purposes of this subchapter, improper motive is demonstrated by action such as the following: 3 EFTA00812593  (a) A trustee refusing to make or limiting distributions to beneficiaries other than the trustee due to the trustee's self-interest when the trustee also holds a beneficial interest subject to a discretionary interest; or (b) A trustee making a distribution in excess of an ascertainable standard to himself or herself as beneficiary when the trustee is restricted by an ascertainable standard in the trust. § 1507. Withdrawal power. A withdrawal power allows a person a right to withdraw all or some part of the trust property, whether from income or principal. The holder of a withdrawal power is not deemed to be the settlor of the trust by failing to exercise a withdrawal power or letting a withdrawal power lapse. § 1508. Distinction between discretionary trust and support trust; creditor rights; judicial review. The common law distinction between a discretionary trust and a support trust and the dual judicial review standards related to this distinction shall be maintained. In the area of creditor rights, the Restatement of Trusts (Third) and the Uniform Trust Code create many new positions of law as well as adopts many minority positions of law. The provisions of this subchapter, affirmatively reject many of these positions. Therefore, the Legislature does not intend the courts to consult the Restatement (Third) of the Law of Trusts § 50, § 56, § 58, § 59, or § 60 as approved by the American Law Institute with respect to subject matters addressed by the provisions of this subchapter. § 1509. Judicial foreclosure of beneficial interests, powers of appointment, and reserved powers prohibited; creditors may not reach powers of appointment or remainder interests. Regardless of whether or not a trust contains a spendthrift provision: No beneficial interest, power of appointment, or reserved power in a trust may be judicially foreclosed; (2) No creditor may reach a power of appointment or a remainder interest at the trust level. The creditor shall wait until the funds are distributed before the creditor may reach the funds; and (3) No power of appointment is property or an interest in property. 4 EFTA00812594 For purposes of this section, a power of appointment is held by a person to whom a power has been given, not the settlor. § 1510. Certain remainder interests not property interests. Although a remainder interest may be an enforceable right, where it is not certain based on the language of the trust that the remainder interest will be distributed within one year, it may not be classified as a property interest. § 1511. Interest of beneficiary or others not reachable by creditors. (a) No creditor may reach an interest of a beneficiary or of any other person on the grounds that the beneficiary or other person holds, either alone or in conjunction with another person, either or both of the following: (1) An unconditional or conditional power to remove a trustee; or (2) An unconditional or conditional power to replace a trustee. (b) The powers to remove or replace a trustee are personal to the power holder. No court may order, direct, or otherwise compel a power holder to directly or indirectly exercise the power to remove or replace a trustee for the purpose of directly or indirectly satisfying, either in whole or in part, any claim or judgment against the power holder or a beneficiary. (c) The powers to remove or replace a trustee, whether exercisable alone or in conjunction with another person, are not a property interest. (d) No creditor may reach an interest of a beneficiary on the grounds that the beneficiary is also a trustee or a co-trustee and no court may foreclose against such an interest. No court may order, direct, or otherwise compel a distribution because the beneficiary is then serving as a trustee or co-trustee. § 1512. Trust property not subject to personal obligations of trustee. Trust property is not subject to the personal obligations of the trustee, even if the trustee becomes insolvent or bankrupt. 5 EFTA00812595 § 1513 Distribution and remainder interests not relevant to division of marital property. Neither a distribution interest nor a remainder interest are relevant in the equitable division of marital property. § 1514. Resources of settlor's spouse to be considered in making distribution from support trust; other beneficiary's resources need not be considered. Unless otherwise provided in the trust, if the settlor's spouse is named as beneficiary, the settlor's spouse is still living, and the trust is classified as a support trust, then the trustee shall consider the resources of the settlor's spouse, including the settlor's obligation of support, prior to making a distribution. In all other cases, unless otherwise provided in the trust, the trustee need not consider the beneficiary's resources in determining whether a distribution should be made. § 1515. Factors which are not dominion and control over trust. In the event that a party challenges a settlor or a beneficiary's influence over a trust, none of the following factors, alone or in combination, may be considered dominion and control over a trust: (1) The settlor or a beneficiary serving as a trustee or a co-trustee as described in §1518; (2) The settlor or a beneficiary holds an unrestricted power to remove or replace a trustee; (3) The settlor or a beneficiary is a trust administrator, a general partner of a partnership, a manager of a limited liability company, an officer of a corporation, or any other managerial function of any other type of entity, and part or all of the trust property consists of an interest in the entity; (4) A person related by blood or adoption to the settlor or a beneficiary is appointed as trustee; (5) The settlor's or a beneficiary's agent, accountant, attorney, financial advisor, or friend is appointed as trustee; (6) A business associate is appointed as a trustee; (7) A beneficiary holds any power of appointment over any or all of the trust property; (8) The settlor holds a power to substitute property of equivalent value; 6 EFTA00812596  (9) The trustee may loan trust property to the senior for less than a full and adequate rate of interest or without adequate security; (10) The distribution language provides any discretion; (11) The trust has only one beneficiary eligible for current distributions; or (12) The beneficiary serving as a trust advisor for investments under section 1561 of this chapter. § 1516. Factors which are insufficient evidence that settlor controls or is alter ego of trustee. Absent clear and convincing evidence, no settlor of an irrevocable trust may be deemed to be the alter ego of a trustee. The following factors by themselves or in combination are not sufficient evidence for a court to conclude that the settlor controls a trustee or is the alter ego of a trustee: (1) Any combination of the factors listed in §I515; (2) Isolated occurrences where the settlor has signed checks, made disbursements, or executed other documents related to the trust as a trustee, when in fact the settlor was not a trustee; (3) Making any requests for distributions on behalf of beneficiaries; (4) Making any requests to the trustee to hold, purchase, distribute, or sell any trust property. § 1517. Provision that beneficial interest in trust income or principal may not be transferred before payment to beneficiary permissible. A settlor may provide in the terms of the trust that a beneficiary's beneficial interest in a trust's income, principal, or in both, may not be voluntarily or involuntarily transferred before payment or delivery of the beneficial interest to the beneficiary by the trustee. § 1518. Trust declaration that beneficiary's interest subject to spendthrift trust; payment of beneficiary expenses. A declaration in a trust that the interest of a beneficiary shall be held subject to a spendthrift trust is sufficient to restrain voluntary or involuntary alienation of a beneficial interest by a 7 EFTA00812597 beneficiary to the maximum extent provided by law. Regardless of whether a beneficiary has any outstanding creditor, a trustee of a spendthrift trust may directly pay any expense on behalf of such beneficiary and may exhaust the income and principal of the trust for the benefit of such beneficiary. No trustee is liable to any creditor for paying the expenses of a beneficiary of a spendthrift trust. § 1519. Satisfaction of claims of settlor's creditors from trust estate if settlor is beneficiary. If a settlor is also a beneficiary of the trust, and the transfer is a qualified disposition pursuant to subchapter III, the provisions of §§ 1506 to 1527, inclusive, also apply. Conversely, if the settlor is a beneficiary of the trust and the transfer is not a qualified disposition pursuant to subchapter III, a provision restraining the voluntary or involuntary transfer of the settlor's beneficial interest does not prevent the settlor's creditors from satisfying claims from the settlor's interest in the trust estate. § 1520. Effect on creditor claims of trustee discretionary powers to pay taxes or make reimbursements for taxes. Regardless of whether a disposition is a qualified disposition pursuant to subchapter III of this chapter, where a trustee is granted a discretionary power by the terms of the trust instrument, or any provision of law, to pay directly to any taxing authority, or to reimburse the person liable for, any tax imposed by a taxing authority on the person by reason of the person being treated as the owner of all or any portion of the trust property pursuant to §§ 671 to 678, inclusive, of the Internal Revenue Code of 1986, 26 U.S.C. §§ 671 to 678, inclusive, as of January 1, 2016, and the U.S. Treasury Regulations promulgated thereunder, as of January 1, 2016, or pursuant to the applicable law of any other jurisdiction: (1) A creditor of the person shall not satisfy a claim from the property of the trust solely because of the existence or exercise of the discretionary power; and (2) The use of trust property to pay the tax shall not be deemed a distribution or transfer of trust property to the person for any purpose, and the amount paid from the trust to the taxing authority or to the person in reimbursement of the person's payment of the tax is not subject to the claims of a creditor of the person solely because of the existence or exercise of the discretionary power. § 1521. Application of spendthrift provision. A spendthrift provision applies to both distribution interests and remainder interests. A spendthrift provision is a material provision of a trust. 8 EFTA00812598 § 1522. Classification of distribution interest. A distribution interest can be classified in three ways: As a mandatory interest, which is a distribution interest, in which the timing of any distribution must occur within one year from the date the right to the distribution arises, and the trustee has no discretion in determining whether a distribution shall be made or the amount of such distribution; (2) As a support interest, which is not a mandatory interest but still contains mandatory language such as "shall make distributions" and is coupled with a standard capable of judicial interpretation; or (3) As a discretionary interest, which is any interest where a trustee has any discretion to make or withhold a distribution. A discretionary interest may be evidenced by permissive language such as "may make distributions" or it may be evidenced by mandatory distribution language that is negated by the discretionary language of the trust, such as "the trustee shall make distributions in the trustee's sole and absolute discretion." An interest that includes mandatory distribution language such as "shall" but is subsequently qualified by discretionary distribution language shall be classified as a discretionary interest and not as a support or a mandatory interest. A discretionary interest is any interest that is not a mandatory or a support interest. § 1523. Bifurcation of trust. To the extent a trust contains any combination of a mandatory provision or a support provision or other provisions, the trust shall be bifurcated as follows: (1) The trust shall be a mandatory interest only to the extent of the mandatory language; (2) The trust shall be a support interest only to the extent of such support language; (3) The remaining trust property shall be held as a discretionary interest; (4) A support interest that includes mandatory language such as "shall" but is subsequently qualified by discretionary language, shall be classified as a discretionary interest and not as a support interest. 9 EFTA00812599 § 1524. Language resulting in classification of distribution interest. Although not the exclusive means to create a distribution interest, absent clear and convincing evidence to the contrary, the following language by itself results in the following classification of distribution interest: (a) Mandatory interest: (i) "All income shall be distributed to (named beneficiary)"; or (ii) "One hundred thousand dollars a year shall be distributed to (named beneficiary)"; (b) Support interest: "The trustee shall make distributions for health, education, maintenance, and support"; (b) Discretionary interest: (i) "The trustee, may, in the trustee's sole and absolute discretion make distributions for health, education, maintenance, and support"; (ii) "The trustee, in the trustee's sole and absolute discretion, shall make distributions for health, education, maintenance, and support"; (iii) "The trustee may make distributions for health, education, maintenance, and support"; (iv) "The trustee shall make distributions for health, education, maintenance, and support. The trustees may exclude any of the beneficiaries or may make unequal distributions among them"; (v) "The trustee may make distributions for health, education, maintenance, support, comfort, and general welfare." § 1525. Effect of spendthrift provision. If the trust contains a spendthrift provision, no creditor may reach present or future mandatory distributions from the trust at the trust level. Moreover, no court may order a trustee to distribute past due mandatory distributions directly to a creditor. 10 EFTA00812600 § 1526. Mandatory or support interests. (a) A beneficiary of a mandatory or a support interest has an enforceable right to a distribution pursuant to a court's review. A trustee's distribution decision may be reviewed for unreasonableness, dishonesty, improper motivation, or failure, if under a duty to do so, to act. This does not, however, raise the beneficiary's support interest to the level of a property interest. (b) If the trust contains a spendthrift provision, notwithstanding the beneficiary's right to force a distribution with regard to a mandatory or support interest, no creditor may force a distribution with regard to a mandatory or support interest. No creditor may reach present or future support distributions with regard to a mandatory or support interest. (c) Regardless of whether a beneficiary has any outstanding creditor, a trustee of a mandatory or a support interest may directly pay any expense on behalf of such beneficiary. No trustee is liable to any creditor for paying the expenses of a beneficiary of a mandatory or support interest. § 1527. Discretionary interests. The following provisions apply only to discretionary interests: (a) A discretionary interest is neither a property interest nor an enforceable right. It is a mere expectancy; (b) No creditor may force a distribution with regard to a discretionary interest. No creditor may require the trustee to exercise the trustee's discretion to make a distribution with regard to a discretionary interest; (c) A court may review a trustee's distribution discretion only if the trustee: (1) Acts dishonestly; (2) Acts with an improper motive; or (3) Fails, if under a duty to do so, to act. A reasonableness standard may not be applied to the exercise of discretion by the trustee with regard to a discretionary interest. Other than for the three circumstances listed in this subsection (c), a court has no jurisdiction to review the trustee's discretion or to force a distribution. Absent express language to the contrary, in the event that the distribution language in a discretionary interest permits unequal distributions between beneficiaries or distributions to the exclusion of other beneficiaries, the trustee may distribute all of the accumulated, accrued, or undistributed income and principal to one beneficiary in the trustee's discretion. 11 EFTA00812601 Regardless of whether a beneficiary has any outstanding creditor, a trustee of a discretionary interest may directly pay any expense on behalf of such beneficiary and may exhaust the income and principal of the trust for the benefit of such beneficiary. No trustee is liable to any creditor for paying the expenses of a beneficiary of a discretionary interest. § 1528. Action for fraudulent transfer of settlor's assets. Notwithstanding any other provision of law, no action of any kind, including an action to enforce a judgment entered by a court or other body having adjudicative authority, may be brought at law or in equity for an attachment or other provisional remedy against property that is the subject of a Virgin Islands trust or for avoidance of a transfer to a Virgin Islands trust unless the settlor's transfer of property was made with the intent to defraud that specific creditor. § 1529. Limitation of action for fraudulent transfer of settlor's assets. A cause of action or claim for relief with respect to a fraudulent transfer of a settlor's assets pursuant to §1528 is extinguished unless the action under §1528 is brought by a creditor of the settlor who meets one of the following requirements: (a) Is a creditor of the settlor before the settlor's assets are transferred to the trust, and the action under §1528 is brought within the later of: (1) Two years after the transfer is made; or (2) Six months after the transfer is or reasonably could have been discovered by the creditor if the creditor: (i) Can demonstrate that the creditor asserted a specific claim against the settlor before the transfer; or (ii) Files another action, other than an action under §1528, against the settlor that asserts a claim based on an act or omission of the senior that occurred before the transfer, and the action described in this subsection is filed within two years after the transfer; or (b) Becomes a creditor subsequent to the transfer into trust, and the action under §1528 is brought within two years after the transfer is made. (c) In any action described in §1528, the burden to prove the matter by clear and convincing evidence is upon the creditor. 12 EFTA00812602 § 1530. No contest clause defined; enforceability. For purposes of §§1530 to 1535, inclusive, a no contest clause is a provision or clause in a trust, that penalizes a qualified beneficiary for contesting a trust or instituting other proceedings at law or equity relating to the trust estate, excluding proceedings related to trust administration. Except as provided in §§1530 to 1535, inclusive, a no contest clause shall be enforced unless probable cause exists for instituting the proceeding on the grounds of: (1) Fraud; (2) Duress; (3) Revocation; (4) Lack of contractual capacity; (5) Undue influence; (6) Mistake; (7) Forgery; or (8) Irregularity in the execution of the trust document. § 1531. Extrinsic evidence not admissible to establish settlor's intent concerning no contest clause. A no contest clause shall be construed to carry out the settlor's intent. Except to the extent the no contest clause in the trust is vague or ambiguous, extrinsic evidence is not admissible to establish the settlor's intent concerning the no contest clause. The provisions of this section do not prohibit such evidence from being admitted for any other purpose authorized by law. § 1532. Circumstances under which no contest clause unenforceable. A no contest clause is not enforceable against a beneficiary to the extent the beneficiary, in good faith and based upon probable cause, contests a provision that benefits any of the following persons: (I) A person who drafted or transcribed the instrument; (2) A person who gave directions to the drafter of the instrument concerning dispositive or other substantive contents of the provisions or who directed the drafter to include the no contest clause in the instrument; however, this section does not apply if the settlor affirmatively instructed the drafter to include the contents of the provision or the no contest clause; or 13 EFTA00812603  (3) A person who acted as a witness to the instrument. § 1533. Contest regarding settlor's signature. Notwithstanding anything to the contrary in §§1530 to 1535, inclusive, a no contest clause is enforceable against a beneficiary to the extent the beneficiary elects to contest or otherwise challenge the settlor's signature whereby such a challenge does not in any manner constitute good, probable, or reasonable cause if the settlor's signature was witnessed by nonrelative witnesses or a duly qualified nonrelative notary public or both. § 1534. Attorneys fees and costs. The court may award attorneys fees and costs to the prevailing party in an action involving the enforceability of a no contest provision. § 1535. Effective date of §§1530 to 1534. Sections 1530 to 1534, inclusive, are effective for all trusts in existence on, created, amended, or restated after the date of enactment of the act that added this chapter. § 1536. Interest on general pecuniary devises. General pecuniary devises bear interest at the rate of interest on judgments as provided in title 5, section 426, beginning one year after the event requiring a distribution until payment, unless a contrary intent is indicated by the terms of the trust. § 1537. Expansion, restriction, elimination, or variance of provisions of general application. The terms of a governing instrument may expand, restrict, eliminate, or otherwise vary any provisions of general application to trusts and trust administration. Nothing in this section allows the terms of the governing instrument to expand, restrict, eliminate, or otherwise vary the duties, restrictions, and liabilities imposed by the provisions of §1094 and §1095 of this title. § 1538. Arbitration. A trustee shall have the power to submit to arbitration a claim in favor of or against a trust or trustee. In addition, a provision in a trust requiring the arbitration of a dispute between or among the beneficiaries, a fiduciary under the will or trust, or any combination of them, is enforceable 14 EFTA00812604 in the same manner as an arbitration clause in a contract. Unless otherwise provided in the governing instrument or a court order, the arbitration shall be held in the Virgin Islands. Notwithstanding the foregoing, a challenge to the validity of all or part of the trust is not subject to arbitration. Any proceeding pursuant to this section is subject, upon request by the acting trustee, the settlor, if living, or any beneficiary, to appropriate privacy protections as determined by the arbitrator or a court. § 1539. Trust enforceable although not funded or without res, corpus, or assets. A trust is valid and enforceable even though it may not be funded at a given time, or from time to time, or does not initially have any res or corpus or otherwise contain any asset of any nature. A trust is valid and enforceable even though its res is neither ascertainable nor identifiable at the time of the trust's creation. No trustee, trust protector, or trust advisor has any duty prior to the time a trust has a res, corpus, or any asset. § 1540. Notice to qualified beneficiaries of existence of trust; information to be provided to excluded fiduciaries. (a) For purposes of this section, the term "qualified beneficiary" means a beneficiary that is an entity then in existence or an individual who is twenty-one years of age or older and who, on the date the beneficiary's qualification is determined: (1) Is a distributee or permissible distributee of trust income or principal; (2) Would be a distributee or permissible distributee of trust income or principal if the interests of the distributees terminated on that date; or (3) Would be a distributee or permissible distributee of trust income or principal if the trust terminated on that date. However, if the distributee is then unknown because a person holds a power to change the distributee, the trustee shall give notice only to the holder of the power. (b) Except as otherwise provided by the terms of a revocable trust, a trustee has no duty to notify the qualified beneficiaries of the trust's existence. (c) Except as otherwise provided by the terms of an irrevocable trust or otherwise directed in writing by the settlor, trust advisor, or trust protector, the trustee shall, within sixty days after the trustee has accepted trusteeship of the trust, or within sixty days after the date the trustee acquires knowledge that a formerly revocable trust has become irrevocable, notify the qualified beneficiaries of the trust's existence and of the right of the beneficiary to request a copy of the trust instrument pertaining to the beneficiary's interest in the trust. 15 EFTA00812605  (d) Except as otherwise provided by the terms of an irrevocable trust or otherwise directed in writing by the settlor, trust advisor, or trust protector, a trustee of an irrevocable trust: (1) Upon request of a qualified beneficiary, shall promptly furnish to the qualified beneficiary a copy of the trust instrument; (2) If notification of the trust has not been accomplished pursuant to this section within sixty days after accepting a trusteeship, shall notify the qualified beneficiaries of the acceptance and of the trustee's name, address, and telephone number; (3) Shall promptly respond to a qualified beneficiary's request for information related to the administration of the trust, unless the request is unreasonable under the circumstances. (e) The settlor, trust advisor, or trust protector, may, by the terms of the governing instrument, or in writing delivered to the trustee, expand, restrict, eliminate, or otherwise modify the rights of beneficiaries to information relating to a trust. (0 A beneficiary may waive the right to the notice or information otherwise required to be furnished under this section and, with respect to future reports and other information, may withdraw a waiver previously given. (g) The change in the identity of a trustee, occurring as the result of a mere name change or a merger, consolidation, combination, or reorganization of a trustee, does not require notice. (h) If a fiduciary is bound by a duty of confidentiality with respect to a trust or its assets, a fiduciary may require that any beneficiary who is eligible to receive information pursuant to this section be bound by the duty of confidentiality that binds the trustee before receiving such information from the trustee. (i) A trust advisor, trust protector, or other fiduciary designated by the terms of the trust shall keep each excluded fiduciary designated by the terms of the trust reasonably informed about: (1) The administration of the trust with respect to any specific duty or function being performed by the trust advisor, trust protector, or other fiduciary to the extent that the duty or function would normally be performed by the excluded fiduciary or to the extent that providing such information to the excluded fiduciary is reasonably necessary for the excluded fiduciary to perform its duties; and (2) Any other material information that the excluded fiduciary would be required to disclose to the qualified beneficiaries under this section regardless of whether 16 EFTA00812606  the terms of the trust relieve the excluded fiduciary from providing such information to qualified beneficiaries. Neither the performance nor the failure to perform of a trust advisor, trust protector, or other fiduciary designated by the terms of the trust as provided in this subdivision shall affect the limitation on the liability of the excluded fiduciary. (j) The provisions of this section are effective for trusts created after the date of enactment of the act that added this section, except as otherwise directed by the settlor, trust protector, trust advisor, or other fiduciary designated by the terms of the trust. For trusts created prior to such date, a trustee has no duty at common law or otherwise to notify a qualified beneficiary of the trust's existence unless otherwise directed by the settlor. § 1541. Trustee authorized to distribute income or principal from first trust may appoint all or part in favor of trustee of second trust; restrictions; power of appointment to beneficiary of second trust. (a) Unless the terms of the governing instrument expressly provide otherwise, if 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 (the "first trust", as used in this section and in §§ 1542-1548 inclusive), whether or not restricted by any standard, then the trustee, independently or with court approval, may exercise such discretion by appointing part or all of the income or principal subject to the discretion in favor of a trustee of a second trust (the "second trust" as used in this section and in §§ 1542-1548, inclusive) under a governing instrument separate from the governing instrument of the first trust. Before exercising its discretion to appoint and distribute assets to a second trust, the trustee of the first trust shall 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. For the purposes of this section, a trustee of the first trust is a restricted trustee if either the trustee is a beneficiary of the first trust or if a beneficiary of the first trust has a power to change the trustees within the meaning of § 1543. In addition, the following apply to all appointments made under this section: (1) The second trust may only have as beneficiaries one or more of the beneficiaries of the first trust: (i) To or for whom a discretionary distribution of income or principal may be made from the first trust; or (ii) 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; or (iii) Both (i) and (ii); 17 EFTA00812607  (2) No restricted trustee of the first trust may exercise such authority over the first trust to the extent that doing so could have the effect of: (i) Benefiting the restricted trustee as a beneficiary of the first trust, unless the exercise of such authority is limited by an ascertainable standard based on or related to health, education, maintenance, or support; or (ii) Removing restrictions on discretionary distributions to a beneficiary imposed by the governing instrument under which the first trust was created, except that a provision in the second trust which limits distributions by an ascertainable standard based on or related to the health, education, maintenance, or support of any such beneficiary is permitted, or to a trust established pursuant to 42 U.S.C. § 1396(p)(d)(4); (3) No restricted trustee of the first trust may exercise such 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 within the meaning of § 1541 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 based on or related to health, education, maintenance, or support; (4) The provisions of paragraphs (2) and (3) only apply to restrict the authority of a trustee if either a trustee, or a beneficiary who may change the trustee, is a United States citizen or domiciliary under the Internal Revenue Code, or the trust owns property that would be subject to United States estate or gift taxes if owned directly by such a person; (5) In the case of any trust contributions which have been treated as gifts qualifying for the exclusion from gift tax described in § 2503(b) of the Internal Revenue Code of 1986, by reason of the application of Internal Revenue Code § 2503(c), the governing instrument for the second trust shall 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; (6) The exercise of such authority may not reduce any income interest of any income beneficiary of any of the following trusts: (i) A trust for which a marital deduction has been taken for federal tax purposes under Internal Revenue Code § 2056 or § 2523 or for state tax purposes under any comparable provision of applicable state law; (ii) A charitable remainder trust under Internal Revenue Code § 664; or 18 EFTA00812608  (iii) A grantor retained annuity or unitrust trust under Internal Revenue Code § 2702; (7) 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; (8) The exercise of such authority is not prohibited by a spendthrift clause or by a provision in the governing instrument that prohibits amendment or revocation of the trust; (9) Any appointment made by a trustee shall be considered a distribution by the trustee pursuant to the trustee's distribution powers and authority; and (10) If the trustee's distribution discretion is not subject to a standard, or if the trustee's distribution discretion is subject to a standard that does not create a support interest, then the court may review the trustee's determination or any related appointment only pursuant to § 1527. Any other court review of the trustee's determination or any related appointment may be made only pursuant to § 1526. (b) Notwithstanding the foregoing provisions of this section, the governing instrument of the second trust may grant a power of appointment to one or more of the beneficiaries of the second trust who are beneficiaries of the first trust. The power of appointment may include the power to appoint trust property to the holder of the power of appointment, the holder's creditors, the holder's estate, the creditors of the holder's estate, or any other person, whether or not that person is a trust beneficiary. (c) This section applies to any trust administered under the laws of the Virgin Islands, including a trust whose governing jurisdiction is transferred to the Virgin Islands. § 1542. Action that ma not he taken by restricted trustee may be taken by another unrestricted trustee. Any action that may not be taken by a trustee of the first trust by reason of the restrictions in section 1541(a)(2) may instead be taken by any other trustee of the first trust who is not so restricted, or, if none, by the next available party who can be a successor trustee and who is not 19 EFTA00812609 so restricted. The second trust may be a trust created or administered under the laws of any jurisdiction, within or without the United States. § 1543. Conditions under which beneficiary has power to change trustees. For the purposes of § 1541, a beneficiary shall be considered to have the power to "change the trustees" if he or she can, alone or with others, name himself or herself as a trustee or can remove a trustee and replace that trustee with a new trustee who is the beneficiary or who is related or subordinate (as defined in § 672 of the Internal Revenue Code) to the beneficiary. § 1544. Exercise of power to distribute income or principal by written instrument; notice to beneficiaries of first trust. The exercise of the power to distribute the income or principal of the trust under § 1541 shall be by an instrument in writing, signed and acknowledged by the trustee and filed with the records of the trust. The trustee of the first trust may notify all beneficiaries of the first trust, in writing, at least twenty days prior to the effective date of the trustee's exercise of the power under § 1541. A copy of the proposed exercise of this authority and the second trust agreement shall satisfy this notice provision. For the purposes of this section, the term "beneficiaries" means those persons who would be entitled to notice and a copy of the first trust instrument under § 1540. § 1545. Exercise of power to distribute income or principal considered exercise of power of appointment. The exercise of the power to distribute the income or principal of the trust under § 1541 shall be considered the exercise of a power of appointment (other than a power to appoint to the trustee, the trustee's creditors, the trustee's estate, or the creditors of the trustee's estate). § 1546. Impermissible use of power. The power under § 1541 may not be exercised to 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. § 1547. Trustee's right to distribute income or principal in trust arising under law or terms of first trust not abridged. No provision of §§ 1541 to 1546, inclusive, may be construed to abridge the right of any trustee who has power to distribute income or principal in further trust which arises under statute, common law, or the terms of the first trust. 20 EFTA00812610  Subchapter II. Directed Trusts § 1551. Definition of terms. As used in this subchapter: (1) "Instrument" means any revocable or irrevocable trust document created inter vivos or testamentary or any custodial account agreement; (2) "Trust protector" means any person whose appointment as protector is provided for in the instrument. Such person may not be considered to be acting in a fiduciary capacity except to the extent the governing instrument provides otherwise. However, a protector shall be considered acting in a fiduciary capacity to the extent that