HB4594 103RD GENERAL ASSEMBLY

LRB103 34868 LNS 64730 b

103RD GENERAL ASSEMBLY
State of Illinois
2023 and 2024
HB4594

Introduced 1/31/2024, by Rep. Kam Buckner

SYNOPSIS AS INTRODUCED:

760 ILCS 3/103
760 ILCS 3/110
760 ILCS 3/402
760 ILCS 3/407
760 ILCS 3/409.5 new

Amends the Illinois Trust Code. Allows a virtuous trust to be created for a business or other noncharitable purpose without a definite or definitely ascertainable beneficiary. Requires a virtuous trust to be created by a written instrument. Allows a virtuous trust to hold an ownership interest of any corporation, partnership, limited partnership, cooperative, limited liability company, limited liability partnership, or joint venture. Provides that a trustee of a virtuous trust or a virtuous trust shall not be deemed to violate the trustee's duties by virtue of the trustee investing and managing the trust's assets pursuant to the terms and the purposes of the trust. Exempts a virtuous trust from the common law rule against perpetuities. Allows a virtuous trust to be enforced by one or more trust enforcers appointed in the trust instruction, and allows a virtuous trust instrument to provide for appointing successor trust enforcers. Requires a virtuous trust to have a trust purpose committee with at least 3 persons as members. Includes provisions related to the trust purpose committee, including appointment procedures, voting procedures, powers of the committee, resignation procedures, and reporting requirements. Provides that property of a virtuous trust may be applied only to its intended use. Allows the trust purpose committee and the trust enforcers to modify or terminate a virtuous trust by unanimous agreement. Prohibits a person serving as a trustee from servicing as a trust enforcer or as a member of the trust purpose committee. Makes conforming changes.

A BILL FOR

AN ACT concerning civil law.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Illinois Trust Code is amended by changing Sections 103, 110, 402, and 407 and by adding Section 409.5 as follows:

(760 ILCS 3/103)

Sec. 103. Definitions. In this Code:

(1) "Action", with respect to an act of a trustee, includes a failure to act.

(1.5) "Appointive property" means the property or property interest subject to a power of appointment.

(2) "Ascertainable standard" means a standard relating to an individual's health, education, support, or maintenance within the meaning of Section 2041(b)(1)(A) or 2514(c)(1) of the Internal Revenue Code and any applicable regulations.

(3) "Beneficiary" means a person that:

(A) has a present or future beneficial interest in a trust, vested or contingent, assuming nonexercise of powers of appointment, excluding the right of a settlor to be reimbursed for tax obligations as provided in paragraph (3) of subsection (a) of Section 505;

(B) in a capacity other than that of trustee, holds a power of appointment over trust property; or

(C) is an identified charitable organization that will or may receive distributions under the terms of the trust. "Beneficiary" does not include a permissible appointee of power of appointment, other than the holder of a presently exercisable general power of appointment, until the power is exercised in favor of such appointee.

(4) "Charitable interest" means an interest in a trust that:

(A) is held by an identified charitable organization and makes the organization a qualified beneficiary;

(B) benefits only charitable organizations and, if the interest were held by an identified charitable organization, would make the organization a qualified beneficiary; or

(C) is held solely for charitable purposes and, if the interest were held by an identified charitable organization, would make the organization a qualified beneficiary.

(5) "Charitable organization" means:

(A) a person, other than an individual, organized and operated exclusively for charitable purposes; or

(B) a government or governmental subdivision, agency, or instrumentality, to the extent it holds funds exclusively for a charitable purpose.

(6) "Charitable purpose" means the relief of poverty, the advancement of education or religion, the promotion of health, municipal or other governmental purpose, or another purpose the achievement of which is beneficial to the community.

(7) "Charitable trust" means a trust, or portion of a trust, created for a charitable purpose.

(8) "Community property" means all personal property, wherever situated, that was acquired as or became, and remained, community property under the laws of another jurisdiction, and all real property situated in another jurisdiction that is community property under the laws of that jurisdiction.

(9) "Current beneficiary" means a beneficiary that on the date the beneficiary's qualification is determined is a distributee or permissible distributee of trust income or principal. The term "current beneficiary" includes the holder of a presently exercisable general power of appointment but does not include a person who is a beneficiary only because the person holds any other power of appointment. In a revocable trust, "current beneficiary" does not include a person who may receive trust assets only through the exercise of a power to make a gift on behalf of the settlor.

(10) "Directing party" means any investment trust advisor, distribution trust advisor, or trust protector.

(11) "Donor", with reference to a power of appointment, means a person that creates a power of appointment.

(12) "Environmental law" means a federal, state, or local law, rule, regulation, or ordinance relating to protection of the environment.

(13) "General power of appointment" means a power of appointment exercisable in favor of a powerholder, the powerholder's estate, a creditor of the powerholder, or a creditor of the powerholder's estate.

(14) "Guardian of the estate" means a person appointed by a court to administer the estate of a minor or adult individual.

(15) "Guardian of the person" means a person appointed by a court to make decisions regarding the support, care, education, health, and welfare of a minor or adult individual.

(16) "Incapacitated" or "incapacity" means the inability of an individual to manage property or business affairs because the individual is a minor, adjudicated incompetent, has an impairment in the ability to receive and evaluate information or make or communicate decisions even with the use of technological assistance; or is at a location that is unknown and not reasonably ascertainable. Without limiting the ways in which incapacity may be established, an individual is incapacitated if:

(i) a plenary guardian has been appointed for the individual under subsection (c) of Section 11a-12 of the Probate Act of 1975;

(ii) a limited guardian has been appointed for the individual under subsection (b) of Section 11a-12 of the Probate Act of 1975 and the court has found that the individual lacks testamentary capacity; or

(iii) the individual was examined by a licensed physician who determined that the individual was incapacitated and the physician made a signed written record of the physician's determination within 90 days after the examination and no licensed physician subsequently made a signed written record of the physician's determination that the individual was not incapacitated within 90 days after examining the individual.

(17) "Internal Revenue Code" means the Internal Revenue Code of 1986 as amended from time to time and includes corresponding provisions of any subsequent federal tax law.

(18) "Interested persons" means: (A) the trustee; and (B) all beneficiaries, or their respective representatives determined after giving effect to the provisions of Article 3, whose consent or joinder would be required in order to achieve a binding settlement were the settlement to be approved by the court. "Interested persons" includes a trust advisor, investment advisor, distribution advisor, trust protector, or other holder, or committee of holders, of fiduciary or nonfiduciary powers, if the person then holds powers material to a particular question or dispute to be resolved or affected by a nonjudicial settlement in accordance with Section 111 or by a judicial proceeding. "Interested persons" includes the members of a trust purpose committee and trust enforcers of a virtuous trust created under Section 409.5.

(19) "Interests of the beneficiaries" means the beneficial interests provided in the trust instrument.

(20) "Jurisdiction", with respect to a geographic area, includes a State or country.

(21) "Legal capacity" means that the person is not incapacitated.

(22) "Nongeneral power of appointment" means a power of appointment that is not a general power of appointment.

(22.5) "Permissible appointee" means a person in whose favor a powerholder may exercise a power of appointment.

(23) "Person" means an individual, estate, trust, business or nonprofit entity, public corporation, government or governmental subdivision, agency, or instrumentality, or other legal entity.

(24) "Power of appointment" means a power that enables a powerholder acting in a nonfiduciary capacity to designate a recipient of an ownership interest in or another power of appointment over the appointive property. The term "power of appointment" does not include a power of attorney.

(25) "Power of withdrawal" means a presently exercisable general power of appointment other than a power:

(A) exercisable by the powerholder as trustee that is limited by an ascertainable standard; or

(B) exercisable by another person only upon consent of the trustee or a person holding an adverse interest.

(26) "Powerholder" means a person in which a donor creates a power of appointment.

(27) "Presently exercisable power of appointment" means a power of appointment exercisable by the powerholder at the relevant time. The term "presently exercisable power of appointment":

(A) includes a power of appointment exercisable only after the occurrence of a specified event, the satisfaction of an ascertainable standard, or the passage of a specified time only after:

(i) the occurrence of the specified event;

(ii) the satisfaction of the ascertainable standard; or

(iii) the passage of the specified time; and

(B) does not include a power exercisable only at the powerholder's death.

(28) "Presumptive remainder beneficiary" means a beneficiary of a trust, as of the date of determination and assuming nonexercise of all powers of appointment, who either: (A) would be a distributee or permissible distributee of trust income or principal if the trust terminated on that date; or (B) would be a distributee or permissible distributee of trust income or principal if the interests of all distributees currently eligible to receive income or principal from the trust terminated on that date without causing the trust to terminate.

(29) "Property" means anything that may be the subject of ownership, whether real or personal, legal or equitable, or any interest therein.

(30) "Qualified beneficiary" means each current beneficiary and presumptive remainder beneficiary.

(31) "Revocable", as applied to a trust, means revocable by the settlor without the consent of the trustee or a person holding an adverse interest. A revocable trust is deemed revocable during the settlor's lifetime.

(32) "Settlor", except as otherwise provided in Sections 113 and 1225, means a person, including a testator, who creates, or contributes property to, a trust. If more than one person creates or contributes property to a trust, each person is a settlor of the portion of the trust property attributable to that person's contribution except to the extent another person has the power to revoke or withdraw that portion.

(33) "Sign" means, with present intent to authenticate or adopt a record:

(A) to execute or adopt a tangible symbol; or

(B) to attach to or logically associate with the record an electronic symbol, sound, or process.

(34) "Spendthrift provision" means a term of a trust that restrains both voluntary and involuntary transfer of a beneficiary's interest.

(35) "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 "state" includes an Indian tribe or band recognized by federal law or formally acknowledged by a state.

(36) "Terms of the trust" means:

(A) except as otherwise provided in paragraph (B), the manifestation of the settlor's intent regarding a trust's provisions as:

(i) expressed in the trust instrument; or

(ii) established by other evidence that would be admissible in a judicial proceeding; or

(B) the trust's provisions as established, determined, or modified by:

(i) a trustee or other person in accordance with applicable law;

(ii) a court order; or

(iii) a nonjudicial settlement agreement under Section 111.

(37) "Trust" means (A) a trust created by will, deed, agreement, declaration, or other written instrument, or (B) an oral trust under Section 407.

(38) "Trust accounting" means one or more written communications from the trustee with respect to the accounting year that describe: (A) the trust property, liabilities, receipts, and disbursements, including the amount of the trustee's compensation; (B) the value of the trust assets on hand at the close of the accounting period, to the extent feasible; and (C) all other material facts related to the trustee's administration of the trust.

(39) "Trust instrument" means the written instrument stating the terms of a trust, including any amendment, any court order or nonjudicial settlement agreement establishing, construing, or modifying the terms of the trust in accordance with Section 111, Sections 410 through 416, or other applicable law, and any additional trust instrument under Article 12.

(40) "Trustee" includes an original, additional, and successor trustee, and a co-trustee.

(41) "Unascertainable beneficiary" means a beneficiary whose identity is uncertain or not reasonably ascertainable.

(Source: P.A. 101-48, eff. 1-1-20; 102-279, eff. 1-1-22.)

(760 ILCS 3/110)

Sec. 110. Others treated as qualified beneficiaries.

(a) A person appointed to enforce a trust created for the care of an animal or another noncharitable purpose as provided in Section 408 or 409 has the rights of a qualified beneficiary under this Code.

(b) The Attorney General has the rights of a qualified beneficiary with respect to a charitable trust having its principal place of administration in this State.

(c) A trust enforcer of a virtuous trust as provided in Section 409.5 has the rights of a qualified beneficiary under this Code.

(Source: P.A. 101-48, eff. 1-1-20.)

(760 ILCS 3/402)

Sec. 402. Requirements for creation.

(a) A trust is created only if:

(1) the settlor or other person creating the trust has capacity to create a trust;

(2) the settlor or other person creating the trust indicates an intention to create the trust;

(3) the trust has a definite beneficiary or is:

(A) a charitable trust;

(B) a trust for the care of an animal, as provided in Section 408; or

(C) a trust for a noncharitable purpose, as provided in Section 409; or

(D) a virtuous trust, as provided in Section 409.5;

(4) the trustee has duties to perform; and

(5) the same person is not the sole trustee and sole beneficiary.

(b) A beneficiary is definite if the beneficiary can be ascertained now or in the future, subject to any applicable rule against perpetuities.

(c) A power in a trustee to select a beneficiary from an indefinite class is valid. If the power is not exercised within a reasonable time, the power fails and the property subject to the power passes to the persons who would have taken the property had the power not been conferred.

(Source: P.A. 101-48, eff. 1-1-20; 102-279, eff. 1-1-22.)

(760 ILCS 3/407)

Sec. 407. Evidence of oral trust. Except as required by a statute other than this Code or by Section 409.5, a trust need not be evidenced by a trust instrument, but the creation of an oral trust and its terms may be established only by clear and convincing evidence.

(Source: P.A. 101-48, eff. 1-1-20.)

(760 ILCS 3/409.5 new)

Sec. 409.5. Virtuous trust.

(a) A trust may be created for a business or other noncharitable purpose without a definite or definitely ascertainable beneficiary. The business purpose may seek economic and noneconomic benefits.

(b) A trust authorized by this Section shall be created by a written instrument. The trust instrument may designate one or more categories of stakeholders for whose benefit the trust is created, which may include, but shall not be limited to, employees, suppliers, and customers of the corporation or its subsidiaries or communities in which offices or other establishments of the corporation or its subsidiaries are located.

(c) A trust authorized by this Section may hold an ownership interest of any corporation, partnership, limited partnership, cooperative, limited liability company, limited liability partnership, or joint venture.

(d) A trustee of a trust created under this Section shall not be deemed to violate the trustee's duties under Article 9 by virtue of the trustee investing and managing the trust's assets pursuant to the terms and the purposes of the trust, which may include retaining an ownership interest in a specific corporation, partnership, limited partnership, cooperative, limited liability company, limited liability partnership, or joint venture.

(e) A trust authorized by this Section shall be exempt from the common law rule against perpetuities.

(f) A trust authorized by this Section may be enforced by one or more trust enforcers appointed in the trust instrument, and the trust instrument may provide a process for appointing successor trust enforcers. If at any time no person is acting as trust enforcer, the court shall appoint one or more trust enforcers. Each trust enforcer shall enforce the purpose and the terms of the trust and shall exercise authority as a fiduciary. If more than one person is acting as a trust enforcer, action may be taken by a majority of the persons acting as trust enforcers. A trust enforcer is not a beneficiary of a trust created pursuant to this Section, but a trust enforcer has the rights of a qualified beneficiary.

(g) A trust authorized by this Section must have a trust purpose committee with at least 3 persons as members. Each member of the trust purpose committee shall exercise authority as a fiduciary. The trust instrument may appoint the initial members of the trust purpose committee and may provide a process for appointing successor members. A vacancy on the trust purpose committee must be filled if the trust purpose committee has fewer than 3 members.

(h) A vacancy on the trust purpose committee that is required to be filled must be filled in the following order of priority:

(1) by a person designated in the trust instrument or selected through a process provided in the trust instrument;

(2) by a person appointed by unanimous agreement of the trust enforcers; or

(3) by a person appointed by the court.

(i) Unless the trust instrument provides otherwise and except as provided in paragraph (4) of subsection (j) or subsection (o), the trust purpose committee may take action by a majority vote of its members.

(j) Unless the trust instrument provides otherwise, the trust purpose committee has the power, in carrying out the purposes of the trust and after notice to the trust enforcers, to:

(1) remove a trustee, with or without cause;

(2) appoint one or more successor trustees or co-trustees;

(3) remove a trust enforcer, with or without cause;

(4) remove a member of the trust purpose committee, by unanimous vote of all other members of the trust purpose committee; and

(5) direct distributions from the trust.

(k) Property of a trust authorized by this Section may be applied only to its intended use. No court shall have authority to determine that the value of the trust property exceeds the amount required for the intended use.

(l) Unless the trust instrument provides otherwise, a member of the trust purpose committee or a trust enforcer may resign:

(1) after at least 30 days' notice to the trustee, all other trust enforcers, and all other members of the trust purpose committee; or

(2) at any time with the approval of the court.

(m) The trust purpose committee must send a report to the trustee and to the trust enforcers at least annually showing receipts and disbursements and listing the trust property and liabilities. The trust purpose committee shall keep the trustee and the trust enforcers reasonably informed about the administration of the trust and of the material facts necessary for the trustee to comply with the trustee's duties under Section 813.1 and for the trust enforcers to protect the purposes of the trust.

(n) A trustee of a trust authorized by this Section shall act in accordance with a direction from the trust purpose committee unless the action is manifestly contrary to the terms of the trust or the trustee knows that the action would constitute a serious breach of a fiduciary duty that the trust purpose committee, the trust enforcer, or the trustee owes to the trust. A trustee is liable only for willful misconduct and is not liable for reliance on documents provided by the trust purpose committee or the trust enforcer.

(o) Unless the terms of the trust provide otherwise, the trust purpose committee and the trust enforcers, acting together, may modify or terminate a trust authorized by this Section by unanimous agreement of the members of the trust purpose committee and unanimous agreement of the trust enforcers.

(p) Upon termination of a trust authorized by this Section, the trustee shall distribute all remaining trust property as the terms of the trust provide, or if the terms of the trust do not provide for complete distribution of the property, as a court determines to be consistent with the purposes for which the trust was created.

(q) A person serving as a trustee may not serve as a trust enforcer or as a member of the trust purpose committee, and a person serving as a trust enforcer may not serve as a member of the trust purpose committee.

(r) This Section does not apply to trusts created pursuant to Section 7.65 of the Business Corporation Act of 1983.

(s) A trust created under this Section may be referred to as a "virtuous trust".

(t) Section 808 shall not apply to a virtuous trust.