Legislative Update for June 3, 2022
On May 18, 2022, the General Assembly presented all remaining Truly Agreed To and Finally Passed (TAFP) legislation to Governor Parson for consideration and action. Pursuant to the constitution, the governor will have forty-five days from when the General Assembly adjourns to act on the bills presented to him (Thursday, July 14, 2022). The appropriations bills making up the state’s operating budget must be signed prior to the start of Fiscal Year 2023 (July 1, 2022). Unless otherwise provided in the bill itself (with an emergency clause or a delayed effective date), the effective date of any enacted legislation will be August 28, 2022.
Below are highlights of the Truly Agreed legislation relating to estates, trusts, and probate law. The bill number is hyperlinked to the final text of the TAFP bill.
A complete breakdown of the 2022 Truly Agreed To and Finally Passed Legislation will be available to members of The Missouri in the August issue of the Legislative Digest (prior to the August 28, 2022, effective date of most new laws), and Legislative Updates throughout the summer will feature summaries, breakdowns, and other information about TAFP bills.
ESTATES, TRUSTS, AND PROBATE LAW
HCS SCS SB 886 (Luetkemeyer) – Relating to trusts
Truly Agreed To and Finally Passed – 5/4/2022
Presented to Governor – 5/18/2022
CEMETERY TRUST FUNDS (Section 214.160) (Amend) – When the net income from a cemetery trust fund or funds is sufficient, the responsible county commission shall use the net income to support, maintain, and beautify the public or private cemetery. However, if the net income is insufficient, the commission may use as much of the principal as it deems necessary for the purpose of the basic maintenance to control the growth of grass and weeds.
APPLICATION OF THE RULE AGAINST PERPETUITIES (Section 456.026) (New) [Bar-Supported] – If there is only one beneficiary who is entitled or eligible to receive distributions of income or principal from the trust and such beneficiary holds a general power of appointment over the trust with no other person having a power to appoint any part of the trust to anyone other than the beneficiary, then the beneficiary has a vested interest in the trust for purposes of determining whether a trust is subject to the rule against perpetuities.
FAMILIAL RELATIONSHIPS (SECTION 456.1-114) [Bar-Supported] – For the purposes of interpreting a term of familial relationship in a trust, the terms “descendants,” “issue,” “children,” and similar terms of relationship shall be construed as follows:
- A child conceived or born during a marriage is presumed to be a child of the married persons unless a judicial proceeding is commenced before the death of the presumed parent and it is determined that the presumed parent is not the parent of the child.
- A child who is not conceived or born in a marriage is presumed to not be a child of a person who did not give birth to such child unless a judicial proceeding commenced before the death of such person determined the person is a parent of the child or the person openly recognized the child as his or her child and has not refused to voluntarily support the child. A trustee may rely on its discretion regarding the sufficiency of recognition or support, and the trustee shall not be liable to any person for its exercise of discretion unless the trustee acts in bad faith or with reckless indifference to the purposes of the trust or the interests of the beneficiaries.
- A child adopted prior to eighteen years of age is a child of the adopting parent and not of the natural parents, except that adoption by a spouse of a natural parent shall have no effect on the relationship between the child and the natural parent.
If a parent-child relationship is established pursuant to this section, the rights afforded to the child shall not be retroactive. Instead, such rights shall apply from the time the relationship is established. In addition, the terms of a trust shall prevail over any provision of this section.
TRUST DECANTING (Section 456.4-419) (Amend) [Bar-Initiated Legislative Proposal]
SUBSECTION 1 – A trustee (other than a settlor), who has discretionary power under the terms of a trust to make a distribution of income or principal, may exercise such power by:
- Distributing property from the first trust to one or more second trusts; or
- Modifying the trust instrument for the first trust, which (as modified) becomes one or more second trusts.
SUBSECTION 2 – At least one permissible distributee of the first trust shall be a permissible distributee of the second trust immediately after the distribution. At the time of distribution, if the settlor of the first trust is living and the first trust is not a grantor trust under Subpart E of Part I of Subchapter J of Chapter 1 of the Internal Revenue Code of 1986 (as amended), there may not be any permissible distributee of the second trust immediately after the distribution who is not a permissible distributee of the first trust. At the time of distribution, if the settlor of the first trust is deceased or if the first trust is a grantor trust under the Internal Revenue Code, for reasons other than the trustee having the power granted under this section, any beneficiary of the first trust may be included as a permissible distributee of the second trust immediately after the distribution. The second trust may not include any beneficiary who is not a beneficiary of the first trust.
The trust instrument for the second trust may retain, modify, or omit a power of appointment granted in the first trust, and the trust instrument for the second trust may create a power of appointment if the powerholder is a beneficiary of the second trust. Except to the extent provided otherwise in subsection 4 of this section, a power of appointment in the trust instrument for the second trust may be a general or nongeneral power of appointment and the permissible appointees of the power need not be limited to the beneficiaries of the first trust.
SUBSECTION 3 – For purposes of this subsection, the terms “beneficiary with a disability,” “governmental benefits,” “special-needs fiduciary,” and “special-needs trust” are defined. With respect to a trust that has a beneficiary with a disability, a special-needs fiduciary may exercise the authority to make a distribution to a second trust if:
- The second trust is a special-needs trust that has a beneficiary with a disability, and
- The fiduciary determines that the exercise of authority will further the purposes of the trust.
Notwithstanding subdivision (4) of subsection 2, the terms of the second trust may:
- Provide that an interest is held by a pooled trust as defined by Medicaid law for the benefit of a beneficiary with a disability under 42 U.S.C. Section 1396p(d)(4)(C); or
- Contain payback provisions complying with reimbursement requirements of Medicaid law under 42 U.S.C. Section 1396p(d)(4)(A).
The provisions of subdivision (3) of subsection 4 of this section shall not apply to the interests of the beneficiary with a disability. Except as affected by any change to the interests of the beneficiary with a disability, the second trust or trusts (in aggregate) shall grant each other beneficiary of the first trust beneficial interests in the second trusts which are substantially similar to the beneficiary’s beneficial interests in the first trust, unless such other beneficiary’s interest is modified in accordance with the provision of this section other than subsection 3.
SUBSECTION 4 – If the exercise of the authority granted by subsection 1 is limited by an ascertainable standard and the trustee exercising such authority is a permissible distributee of the first trust under such standard, then the discretionary power under the trust instrument for the second trust to distribute income or principal to such trustee shall be subject to the same ascertainable standard (or a more restrictive ascertainable standard). The trust instrument for the second trust shall not modify a power of appointment granted to such trustee in the first trust or grant a power of appointment to such trustee that did not exist in the first trust. A second trust shall not include or omit terms that would prevent the first trust property from qualifying as a marital deduction, as a charitable deduction, for exclusion from the gift tax, as a qualified subchapter-S trust, or for a zero inclusion ratio for purposes of the generation skipping transfer tax under the Internal Revenue Code. Furthermore, if the first trust property includes shares of an S-corporation's stock and the first trust is a permitted shareholder, then the trustee of the first trust may exercise the authority with respect to the S-corporation stock if the second trust is a permitted shareholder.
SUBSECTION 5 – At least sixty days prior to making a discretionary distribution under subsection 1, the trustee of the first trust shall notify the permissible distributees of the first trust and the permissible distributees of the second trust of the distribution. A beneficiary may waive the right to the required notice and, with respect to future distributions, may withdraw a waiver previously given.
SUBSECTION 8 – A second trust may have a duration that is the same as or different than the duration of the first trust. To the extent that property of the second trust is attributable to property of the first trust, the property of the second trust is subject to any rules governing maximum perpetuity, accumulation, or suspension of the power of alienation which apply to the property of the first trust. This subsection shall not preclude the creation of a general power of appointment in the trust instrument for a second trust as authorized by subdivision (5) of subsection 2.
SUBSECTION 9 – In the event that the trust instrument for the second trust does not comply with this section but would otherwise be effective under this section, the exercise of the power is effective. The following rules apply with respect to the principal of the second trust attributable to the exercise of the power:
- A provision in the trust instrument for the second trust which is not permitted under this section is void to the extent necessary to comply with this section.
- A provision which is not contained the trust instrument, but which this section requires to be in the instrument, shall be deemed to be included in the trust instrument to the extent necessary to comply with this section.
DISCRETIONARY TRUSTS – INFORMATION RELATED TO ASSETS OR OTHER TRUST RECORDS (Section 456.5-504) (Amend) [Bar-Supported] – According to a new subsection 5, whether or not a trust contains a spendthrift provision, no creditor or other person making a claim against a beneficiary shall be entitled to any information related to the trust’s assets or other trust records if distributions to the beneficiary are solely within the discretion of the trustee. The provisions of this subsection shall apply during the term of the trust, regardless of whether the beneficiary is also a potential remainder beneficiary of the trust.
CREDITOR’S CLAIM AGAINST SETTLOR (Section 456.5-505) (Amend) [Bar-Supported] – Subsection 4 provides that, in the event that a trust meets the requirements set forth in subsection 3 of this section, a settlor’s creditors may not reach the settlor’s beneficial interest in that trust, regardless of:
- Any testamentary power of appointment that is exercisable by the settlor, by a will or other written instrument, in favor of any appointees other than the settlor, the settlor’s estate, the settlor’s creditors, or the creditor of the settlor’s estate; or
- The settlor’s power to veto distributions from the trust.
Subsection 7 provides that, for all purposes of section 456.5-501 to 456.5-508, the settlor of any of the following trusts (“first trust”) shall not be treated as the settlor of any other trust (“second trust”) that is created pursuant to the exercise of a power of appointment over the first trust if the settlor is a beneficiary of the second trust:
- An irrevocable inter vivos trust for the benefit of the settlor’s spouse that qualifies for the marital deduction from the federal gift tax under Section 2523(e) of the Internal Revenue Code;
- An irrevocable inter vivos trust for the benefit of the settlor’s spouse that qualifies for the marital deduction from the federal gift tax under Section 2523(f) of the Internal Revenue Code;
- An irrevocable trust for the benefit of the settlor’s spouse (or the settlor’s spouse and other beneficiaries) where the settlor’s spouse is the beneficiary who exercises the power of appointment to create the second trust; and
- An irrevocable inter vivos trust where any beneficiary exercises a general power of appointment to create the second trust.