UNOFFICIAL COPY AS OF 10/06/1814 REG. SESS.14 RS HB 78/GA
AN ACT relating to trusts and estates.
Be it enacted by the General Assembly of the Commonwealth of Kentucky:
SECTION 1. KRS CHAPTER 386B IS ESTABLISHED, SUBCHAPTER 1 OF KRS CHAPTER 386B IS ESTABLISHED, AND A NEW SECTION THEREOF IS CREATED TO READ AS FOLLOWS:
As used in this chapter, unless the context requires otherwise:
(1)"Action" with respect to an act of a trustee, includes a failure to act;
(2)"Ascertainable standard" means a standard relating to an individual’s health, education, support, or maintenance within the meaning of 26 U.S.C. sec. 2041(b)(1)(A) or 26 U.S.C. sec. 2514(c)(1), as amended;
(3)"Beneficiary" means a person that:
(a)Has a present or future beneficial interest in a trust, vested or contingent; or
(b)In a capacity other than that of trustee, holds a power of appointment over trust property;
(4)"Charitable trust" means a trust, or part of a trust, established for a charitable purpose as described in subsection (1) of Section 27 of this Act;
(5)"Conservator" means a person appointed by the court to administer the estate of a minor or adult individual;
(6)"Environmental law" means a federal, state, or local law, rule, regulation, or ordinance relating to protection of the environment;
(7)"Guardian" means a person appointed by the court, a parent, or a spouse to make decisions regarding the support, care, education, health, and welfare of a minor or adult individual. The term shall not include a guardian ad litem;
(8)"Interests of the beneficiaries" means the beneficial interests provided in the terms of the trust;
(9)"Jurisdiction," with respect to a geographic area, includes a state or country;
(10)"Person" means any individual or entity as defined in KRS 446.010;
(11)"Power of withdrawal" means a presently exercisable general power of appointment other than a power:
(a)Exercisable by a trustee and limited by an ascertainable standard; or
(b)Exercisable by another person only on the consent of the trustee or a person holding an adverse interest;
(12)"Property" means anything that may be the subject of ownership, whether legal or equitable, or any interest therein;
(13)"Qualified beneficiary" means a beneficiary who, on the date the beneficiary's qualification is determined:
(a)Is a distributee or permissible distributee of trust income or principal;
(b)Would be a distributee or permissible distributee of trust income or principal if the interests of the distributees described in paragraph (a) ended on that date without causing the trust to end; or
(c)Would be a distributee or permissible distributee of trust income or principal if the trust ended on that date;
(14)"Revocable" as applied to a trust, means revocable by the settlor without the consent of the trustee or a person holding an adverse interest;
(15)"Settlor" means a person, including a testator, who creates, or contributes property to, a trust. If more than one (1) person creates or contributes property to a trust, each person is a settlor of the part of the trust property attributable to that person's contribution except to the extent another person has the power to revoke or withdraw that part;
(16)"Spendthrift provision" means a term of a trust which restrains both voluntary and involuntary transfer of a beneficiary's interest;
(17)"State" means a State of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States. The term includes an Indian tribe or band recognized by federal law or formally acknowledged by a state;
(18)"Terms of a trust" means the manifestation of the settlor’s intent regarding a trust’s provisions as expressed in the trust instrument or as may be established by other evidence that would be admissible in a judicial proceeding;
(19)(a)"Trust" means an express trust established by a trust instrument, including a will, whereby a trustee has the duty to administer a trust asset for the benefit of a named or otherwise described income or principal beneficiary, or both. This definition includes oral trusts.
(b)"Trust" does not include a resulting or constructive trust, a business trust which provides for certificates to be issued to the beneficiary, an investment trust, a voting trust, a security instrument, a trust established by the judgment of a court, a liquidation trust, or a trust for the primary purpose of paying dividends, interests, interest coupons, salaries, wages, pensions or profits, or employee benefits of any kind, an instrument in which a person is nominee or escrowee for another, a trust established in deposits in any financial institution, or other trust the nature of which does not admit of general trust administration;
(20)"Trust instrument" means an instrument signed by the settlor that contains terms of the trust, including any amendments thereto; and
(21)"Trustee" includes an original, additional, and successor trustee, and a co-trustee.
SECTION 2. A NEW SECTION OF SUBCHAPTER 1 OF KRS CHAPTER 386B IS CREATED TO READ AS FOLLOWS:
(1)Subject to subsection (2) of this section, a person has knowledge of a fact if the person:
(a)Has actual knowledge of it;
(b)Has received a notice or notification of it; or
(c)From all the facts and circumstances known to the person at the time in question, has reason to know it.
(2)An organization that conducts activities through employees has notice or knowledge of a fact involving a trust only from the time the information was received by an employee having responsibility to act for the trust, or would have been brought to the employee’s attention if the organization had exercised reasonable diligence. An organization exercises reasonable diligence if it maintains reasonable routines for communicating significant information to the employee having responsibility to act for the trust and there is reasonable compliance with the routines. Reasonable diligence shall not require an employee of the organization to communicate information unless the communication is part of the individual’s regular duties or the individual knows a matter involving the trust would be materially affected by the information.
SECTION 3. A NEW SECTION OF SUBCHAPTER 1 OF KRS CHAPTER 386B IS CREATED TO READ AS FOLLOWS:
(1)Except as otherwise provided in the terms of the trust, this chapter governs the duties and powers of a trustee, relations among trustees, and the rights and interests of a beneficiary.
(2)The terms of a trust prevail over any provision of this chapter, except:
(a)The requirements for creating a trust;
(b)The duty of a trustee to act in good faith and in the interests of the beneficiaries;
(c)The requirement that a trust and its terms be for the benefit of its beneficiaries, and that the trust have a purpose that is lawful, not contrary to public policy, and possible to achieve;
(d)The power of the court to change or terminate a trust under Subchapter 4 of this chapter;
(e)The effect of a spendthrift provision and the rights of certain creditors and assignees to reach a trust as provided in Subchapter 5 of this chapter;
(f)The power of the court under Section 51 of this Act to require, dispense with, or modify or terminate a bond;
(g)The power of the court under subsection (2) of Section 57 of this Act to adjust a trustee’s compensation as specified in the terms of the trust which is unreasonably low or high;
(h)The duty to notify and report under subsection (2) of Section 72 of this Act ;
(i)The effect of an exculpatory term under Section 86 of this Act;
(j)The rights under Sections 88, 89 and 90 of this Act of a person other than a trustee or beneficiary;
(k)Periods of limitation for commencing a judicial proceeding;
(l)The power of the court to take such action and exercise such jurisdiction as may be necessary in the interests of justice; and
(m)The subject-matter jurisdiction of the court and venue for commencing a proceeding as provided in Sections 15 and 16 of this Act.
SECTION 4. A NEW SECTION OF SUBCHAPTER 1 OF KRS CHAPTER 386B IS CREATED TO READ AS FOLLOWS:
The common law of trusts and principles of equity supplement this chapter, except to the extent modified by this chapter or another statute of this Commonwealth.
SECTION 5. A NEW SECTION OF SUBCHAPTER 1 OF KRS CHAPTER 386B IS CREATED TO READ AS FOLLOWS:
The meaning and effect of the terms of a trust governed by this chapter are determined by:
(1)The law of the jurisdiction designated in the terms unless the designation of that jurisdiction’s law is contrary to a strong public policy of the jurisdiction having the most significant relationship to the matter at issue; or
(2)In the absence of a controlling designation in the terms of the trust, the law of the jurisdiction having the most significant relationship to the matter at issue.
SECTION 6. A NEW SECTION OF SUBCHAPTER 1 OF KRS CHAPTER 386B IS CREATED TO READ AS FOLLOWS:
(1)Without precluding other means for establishing a connection with the designated jurisdiction, terms of a trust designating the principal place of administration are valid and controlling if:
(a)A trustee’s principal place of business is located in or a trustee is a resident of the designated jurisdiction; or
(b)All or part of the administration occurs in the designated jurisdiction.
(2)A trustee is under a continuing duty to administer the trust at a place appropriate to its purposes, its administration, and the interests of the beneficiaries.
(3)Without precluding the right of the court to order, approve, or disapprove a transfer, the trustee, in furtherance of the duty prescribed by subsection (2) of this section, may transfer the trust’s principal place of administration to another state or to a jurisdiction outside of the United States.
(4)The trustee shall notify the qualified beneficiaries of a proposed transfer of a trust’s principal place of administration not less than sixty (60) days before initiating the transfer. The notice of proposed transfer shall include:
(a)The name of the jurisdiction to which the principal place of administration is to be transferred;
(b)The address and telephone number at the new location at which the trustee can be contacted;
(c)An explanation of the reasons for the proposed transfer;
(d)The date on which the proposed transfer is anticipated to occur; and
(e)The date, not less than sixty (60) days after the giving of the notice, by which the qualified beneficiary shall notify the trustee of an objection to the proposed transfer.
(5)The authority of a trustee under this section to transfer a trust’s principal place of administration ends if a qualified beneficiary notifies the trustee of an objection to the proposed transfer on or before the date specified in the notice.
(6)In connection with a transfer of the trust’s principal place of administration, the trustee may transfer some or all of the trust property to a successor trustee designated in the terms of the trust or appointed under Section 53 of this Act.
(7)The District Court shall have exclusive jurisdiction over matters under this section.
SECTION 7. A NEW SECTION OF SUBCHAPTER 1 OF KRS CHAPTER 386B IS CREATED TO READ AS FOLLOWS:
(1)Notice to a person under this chapter or the sending of a document to a person under this chapter shall be accomplished in a manner reasonably suitable under the circumstances and likely to result in receipt of the notice or document. Permissible methods of notice or for sending a document include first-class mail, personal delivery, delivery to the person’s last known place of residence or place of business, or a properly directed electronic message.
(2)Notice otherwise required under this chapter or a document otherwise required to be sent under this chapter need not be provided to a person whose identity or location is unknown to and not reasonably ascertainable by the trustee.
(3)Notice under this chapter or the sending of a document under this chapter may be waived by the person to be notified or sent the document.
(4)Notice of a judicial proceeding shall be given as provided in the applicable rules of civil procedure and, if notice is made by publication, proof of the giving of notice shall be made on or before the hearing and filed in the proceeding as provided in KRS 424.170.
SECTION 8. A NEW SECTION OF SUBCHAPTER 1 OF KRS CHAPTER 386B IS CREATED TO READ AS FOLLOWS:
(1)A charitable organization expressly designated to receive distributions under the terms of a charitable trust has the rights of a qualified beneficiary under this chapter if the charitable organization, on the date the charitable organization’s qualification is being determined:
(a)Is a distributee or permissible distributee of trust income or principal;
(b)Would be a distributee or permissible distributee of trust income or principal on the termination of the interests of other distributees or permissible distributes then receiving or eligible to receive distributions; or
(c)Would be a distributee or permissible distributee of trust income or principal if the trust ended on that date.
(2)A person appointed to enforce a trust established for the care of an animal or another noncharitable purpose under Section 30 or 31 of this Act, has the rights of a qualified beneficiary under this chapter.
(3)Other than those listed in Section 55 of this Act, the Attorney General has the rights of a qualified beneficiary with respect to a charitable trust governed by this chapter.
SECTION 9. A NEW SECTION OF SUBCHAPTER 1 OF KRS CHAPTER 386B IS CREATED TO READ AS FOLLOWS:
(1)For purposes of this section, "interested persons" means persons whose consent would be required to achieve a binding settlement were the settlement to be approved by the court.
(2)Except as otherwise provided in subsection (3) of this section, interested persons may enter into a binding nonjudicial settlement agreement with respect to any matter involving a trust. This procedure is not intended to foreclose or limit any other avenue of settlement under the laws of this Commonwealth.
(3)A nonjudicial settlement agreement is valid only to the extent it does not violate a material purpose of the trust and includes conditions that could be properly approved by the court under this chapter or other applicable law.
(4)Matters that may be resolved by a nonjudicial settlement agreement include:
(a)The interpretation or construction of the terms of the trust;
(b)_The approval of a trustee’s report or accounting;
(c)Direction to a trustee to refrain from performing a particular act or the grant to a trustee of any necessary or desirable power;
(d)The resignation or appointment of a trustee and the determination of a trustee’s compensation;
(e)Transfer of a trust’s principal place of administration; and
(f)Liability of a trustee for an action relating to the trust.
(5)Any interested person may request the court to approve a nonjudicial settlement agreement, to determine whether the representation under Subchapter 3 of this chapter was adequate, and to determine whether the agreement contains conditions the court could have properly approved.
(6)The District Court shall have exclusive jurisdiction over matters under this section.
SECTION 10. A NEW SECTION OF SUBCHAPTER 1 OF KRS CHAPTER 386B IS CREATED TO READ AS FOLLOWS:
The rules of construction that apply in this Commonwealth to the interpretation of and disposition of property by will also apply as appropriate to the interpretation of the terms of a trust and the disposition of the trust property.
SECTION 11. A NEW SECTION OF SUBCHAPTER 1 OF KRS CHAPTER 386B IS CREATED TO READ AS FOLLOWS:
The doctrine of worthier title and the doctrine of reversions shall not be in force in this Commonwealth as rules of law and as rules of construction. Language in a governing instrument describing the beneficiaries of a disposition as the transferor’s "heirs," "heirs at law," "next of kin," "distributees," "relatives," or "family," or language of similar import, shall not create or presumptively create a reversionary interest in the transferor.
SECTION 12. A NEW SECTION OF SUBCHAPTER 1 OF KRS CHAPTER 386B IS CREATED TO READ AS FOLLOWS:
(1)As used in this section, "settlor" means a person that executes a trust instrument. The term includes a person for which a fiduciary or agent is acting.
(2)A trustee of a trust has an insurable interest in the life of an individual insured under a life insurance policy that is owned by the trustee of the trust acting in a fiduciary capacity or that designates the trust itself as the owner if, on the date the policy is issued:
(a)The insured is:
1.A settlor of the trust; or
2.An individual in whom a settlor of the trust has, or would have had if living at the time the policy was issued, an insurable interest; and
(b)The life insurance proceeds are primarily for the benefit of one (1) or more trust beneficiaries that have:
1.An insurable interest in the life of the insured; or
2.A substantial interest engendered by love and affection in the continuation of the life of the insured and, if not already included under subparagraph 1. of this paragraph, who are:
a.Related within the third degree or closer, as measured by the civil law system of determining degrees of relation, either by blood or law, to the insured; or
b.Stepchildren of the insured.
SECTION 13. SUBCHAPTER 2 OF KRS CHAPTER 386B IS ESTABLISHED, AND A NEW SECTION THEREOF IS CREATED TO READ AS FOLLOWS:
(1)The court may intervene in the administration of a trust to the extent its jurisdiction is invoked by an interested person or as provided by law.
(2)A trust is not subject to continuing judicial supervision unless ordered by the court.
(3)A judicial proceeding involving a trust may relate to any matter involving the trust’s administration, including a request for instructions, an action to declare rights, and an action to settle the trustee’s accounts.
SECTION 14. A NEW SECTION OF SUBCHAPTER 2 OF KRS CHAPTER 386B IS CREATED TO READ AS FOLLOWS:
(1)By accepting the trusteeship of a trust having its principal place of administration in this Commonwealth or by moving the principal place of administration to this Commonwealth, the trustee submits personally to the jurisdiction of the courts of this Commonwealth regarding any matter involving the trust.
(2)With respect to their interests in the trust, the beneficiaries of a trust having its principal place of administration in this Commonwealth are subject to the jurisdiction of the courts of this Commonwealth regarding any matter involving the trust. By accepting a distribution from such a trust, the recipient submits personally to the jurisdiction of the courts of this Commonwealth regarding any matter involving the trust.
(3)This section shall not preclude other methods of obtaining jurisdiction over a trustee, beneficiary, or other person receiving property from the trust, including trust registration under Section 17 of this Act.
SECTION 15. A NEW SECTION OF SUBCHAPTER 2 OF KRS CHAPTER 386B IS CREATED TO READ AS FOLLOWS:
Except with regard to matters otherwise provided for by statute:
(1)The District Court and Circuit Court shall have concurrent jurisdiction of any proceedings in this Commonwealth brought by a trustee or beneficiary concerning any trust matter.
(2)If a proceeding is initially brought in District Court concerning any trust matter, the jurisdiction of the District Court shall become exclusive with respect to such matter unless, within twenty (20) days of receipt of notice of such proceeding, a party files an action in Circuit Court relating to the same trust matter, in which event the District Court shall be divested of jurisdiction and the Circuit Court shall have exclusive jurisdiction over such action.
SECTION 16. A NEW SECTION OF SUBCHAPTER 2 OF KRS CHAPTER 386B IS CREATED TO READ AS FOLLOWS:
(1)Venue for proceedings under this chapter involving registered trusts is in the place of registration.
(2)Venue for proceedings under this chapter involving trusts not registered in this Commonwealth is in any place where the trust properly could have been registered, and otherwise by the venue statutes of this Commonwealth.