Full Text of SB1294 97th General Assembly
SB1294 97TH GENERAL ASSEMBLY |
| | 97TH GENERAL ASSEMBLY
State of Illinois
2011 and 2012 SB1294 Introduced 2/8/2011, by Sen. Kirk W. Dillard SYNOPSIS AS INTRODUCED: |
| 760 ILCS 5/16.3 new | | 760 ILCS 5/16.4 new | | 760 ILCS 5/16.5 new | | 760 ILCS 5/16.6 new | | 760 ILCS 5/16.7 new | |
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Amends the Trusts and Trustees Act. Adds provisions authorizing an investment trust advisor, distribution trust advisor, and trust protector to be designated in the governing instrument of a trust. Adds provisions concerning the powers of an authorized trustee who has the absolute discretion to invade the principal of a trust. Adds provisions authorizing establishment of a Domestic Asset Protection Trust. Adds provisions concerning the modification or termination of an irrevocable trust. Contains provisions concerning definitions, conditions and requirements, applicability, and other matters. Effective immediately.
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| | A BILL FOR |
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| 1 | | AN ACT concerning civil law.
| 2 | | Be it enacted by the People of the State of Illinois,
| 3 | | represented in the General Assembly:
| 4 | | Section 5. The Trusts and Trustees Act is amended by adding | 5 | | Sections 16.3, 16.4, 16.5, 16.6, and 16.7 as follows: | 6 | | (760 ILCS 5/16.3 new) | 7 | | Sec. 16.3. Directed trusts. | 8 | | (a) Definitions. In this Section: | 9 | | (1) "Directing party" means any investment trust | 10 | | advisor, distribution trust advisor, or trust protector as | 11 | | provided in this Section. | 12 | | (2) "Distribution trust advisor" means any one or more | 13 | | persons given authority by the governing instrument to | 14 | | direct, consent to, veto, or otherwise exercise all or any | 15 | | portion of the distribution powers and discretions of the | 16 | | trust, including but not limited to authority to make | 17 | | discretionary distribution of income or principal. | 18 | | (3) "Excluded fiduciary" means any fiduciary that by | 19 | | the governing instrument is directed to act in accordance | 20 | | with the exercise of specified powers by a directing party, | 21 | | in which case such specified powers shall be deemed granted | 22 | | not to the fiduciary but to the directing party and such | 23 | | fiduciary shall be deemed excluded from exercising such |
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| 1 | | specified powers. If a governing instrument provides that a | 2 | | fiduciary as to one or more specified matters is to act, | 3 | | omit action, or make decisions only with the consent of a | 4 | | directing party, then such fiduciary is an excluded | 5 | | fiduciary with respect to such matters. | 6 | | (4) "Fiduciary" means any person expressly given one or | 7 | | more fiduciary duties by the governing instrument, | 8 | | including but not limited to a trustee. | 9 | | (5) "Governing instrument" refers to the instrument | 10 | | stating the terms of a trust, including but not limited to | 11 | | any court order or nonjudicial settlement agreement | 12 | | establishing, construing, or modifying the terms of the | 13 | | trust in accordance with Section 16.1, 16.4, or 16.6 or | 14 | | other applicable law. | 15 | | (6) "Investment trust advisor" means any one or more | 16 | | persons given authority by the governing instrument to | 17 | | direct, consent to, veto, or otherwise exercise all or any | 18 | | portion of the investment powers of the trust. | 19 | | (7) "Power" means authority to take or withhold an | 20 | | action or decision, including but not limited to an | 21 | | expressly specified power, the implied power necessary to | 22 | | exercise a specified power, and authority inherent in a | 23 | | general grant of discretion. | 24 | | (8) "Trust protector" means any one or more persons | 25 | | given any one or more of the powers specified in subsection | 26 | | (d), whether or not designated with the title of trust |
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| 1 | | protector by the governing instrument. | 2 | | (b) Powers of investment trust advisor. An investment trust | 3 | | advisor may be designated in the governing instrument of a | 4 | | trust. The powers of an investment trust advisor may be | 5 | | exercised or not exercised in the sole and absolute discretion | 6 | | of the investment trust advisor, and are binding on all other | 7 | | persons, including but not limited to each beneficiary, | 8 | | fiduciary, excluded fiduciary, and any other party having an | 9 | | interest in the trust. The governing instrument may use the | 10 | | title "investment trust advisor" or any similar name or | 11 | | description demonstrating the intent to provide for the office | 12 | | and function of an investment trust advisor. Unless the terms | 13 | | of the governing instrument provide otherwise, the investment | 14 | | trust advisor has the authority to: | 15 | | (1) direct the trustee with respect to the retention, | 16 | | purchase, transfer, assignment, sale, or encumbrance of | 17 | | trust property and the investment and reinvestment of | 18 | | principal and income of the trust; | 19 | | (2) direct the trustee with respect to all management, | 20 | | control, and voting powers related directly or indirectly | 21 | | to trust assets, including but not limited to voting | 22 | | proxies for securities held in trust; | 23 | | (3) select and determine reasonable compensation of | 24 | | one or more advisors, managers, consultants, or | 25 | | counselors, including the trustee, and to delegate to them | 26 | | any of the powers of the investment trust advisor in |
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| 1 | | accordance with subsection (b) of Section 5.1; and | 2 | | (4) determine the frequency and methodology for | 3 | | valuing any asset for which there is no readily available | 4 | | market value. | 5 | | (c) Powers of distribution trust advisor. A distribution | 6 | | trust advisor may be designated in the governing instrument of | 7 | | a trust. The powers of a distribution trust advisor may be | 8 | | exercised or not exercised in the sole and absolute discretion | 9 | | of the distribution trust advisor, and are binding on all other | 10 | | persons, including but not limited to each beneficiary, | 11 | | fiduciary, excluded fiduciary, and any other party having an | 12 | | interest in the trust. The governing instrument may use the | 13 | | title "distribution trust advisor" or any similar name or | 14 | | description demonstrating the intent to provide for the office | 15 | | and function of a distribution trust advisor. Unless the terms | 16 | | of the governing instrument provide otherwise, the | 17 | | distribution trust advisor has authority to direct the trustee | 18 | | with regard to all decisions relating directly or indirectly to | 19 | | discretionary distributions to or for one or more | 20 | | beneficiaries. | 21 | | (d) Powers of trust protector. A trust protector may be | 22 | | designated in the governing instrument of a trust. The powers | 23 | | of a trust protector may be exercised or not exercised in the | 24 | | sole and absolute discretion of the trust protector, and are | 25 | | binding on all other persons, including but not limited to each | 26 | | beneficiary, investment trust advisor, distribution trust |
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| 1 | | advisor, fiduciary, excluded fiduciary, and any other party | 2 | | having an interest in the trust. The governing instrument may | 3 | | use the title "trust protector" or any similar name or | 4 | | description demonstrating the intent to provide for the office | 5 | | and function of a trust protector. The powers granted to a | 6 | | trust protector by the governing instrument may include but are | 7 | | not limited to authority to do any one or more of the | 8 | | following: | 9 | | (1) modify or amend the trust instrument to achieve | 10 | | favorable tax status or respond to changes in the Internal | 11 | | Revenue Code, federal laws, State law, or the rulings and | 12 | | regulations under such laws; | 13 | | (2) increase, decrease, or modify the interests of any | 14 | | beneficiary or beneficiaries of the trust; | 15 | | (3) modify the terms of any power of appointment | 16 | | granted by the trust; provided, however, such modification | 17 | | or amendment may not grant a beneficial interest to any | 18 | | individual, class of individuals, or other parties not | 19 | | specifically provided for under the trust instrument; | 20 | | (4) remove, appoint, or remove and appoint, a trustee, | 21 | | investment trust advisor, distribution trust advisor, | 22 | | another directing party, investment committee member, or | 23 | | distribution committee member, including designation of a | 24 | | plan of succession for future holders of any such office; | 25 | | (5) terminate the trust, including determination of | 26 | | how the trustee shall distribute the trust property to be |
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| 1 | | consistent with the purposes of the trust; | 2 | | (6) change the situs of the trust, the governing law of | 3 | | the trust, or both; | 4 | | (7) appoint one or more successor trust protectors, | 5 | | including designation of a plan of succession for future | 6 | | trust protectors; | 7 | | (8) interpret terms of the trust instrument at the | 8 | | request of the trustee; | 9 | | (9) advise the trustee on matters concerning a | 10 | | beneficiary; or | 11 | | (10) amend or modify the trust instrument to take | 12 | | advantage of laws governing restraints on alienation, | 13 | | distribution of trust property, or to improve the | 14 | | administration of the trust. | 15 | | (e) Duty and liability of directing party. Each directing | 16 | | party is a fiduciary of the trust unless the governing | 17 | | instrument provides otherwise; provided, however, the | 18 | | governing instrument may not exonerate a directing party from | 19 | | the duty to act or withhold acting as the directing party in | 20 | | good faith reasonably believes is in the best interests of the | 21 | | trust. A directing party who the governing instrument specifies | 22 | | is a fiduciary is subject to the same duties and standards that | 23 | | are applicable to a trustee of a trust as provided by | 24 | | applicable law, except to the extent the governing instrument | 25 | | provides otherwise. | 26 | | (f) Duty and liability of excluded fiduciary. The excluded |
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| 1 | | fiduciary shall act in accordance with the governing instrument | 2 | | and comply with the directing party's exercise of the powers | 3 | | granted to the directing party by the governing instrument. | 4 | | Unless otherwise provided in the governing instrument, an | 5 | | excluded fiduciary has no duty to monitor, review, inquire, | 6 | | investigate, recommend, evaluate, or warn with respect to a | 7 | | directing party's exercise or failure to exercise any power | 8 | | granted to the directing party by the governing instrument, | 9 | | including but not limited to any power related to the | 10 | | acquisition, disposition, retention, management, or valuation | 11 | | of any asset or investment. Except as otherwise provided in | 12 | | this Section or the governing instrument, an excluded fiduciary | 13 | | is not liable, either individually or as a fiduciary, for any | 14 | | action, inaction, consent, or failure to consent by a directing | 15 | | party, including but not limited to any of the following: | 16 | | (1) if a governing instrument provides that an excluded | 17 | | fiduciary is to follow the direction of a directing party, | 18 | | and such excluded fiduciary acts in accordance with such a | 19 | | direction, then except in cases of willful misconduct on | 20 | | the part of the excluded fiduciary in complying with the | 21 | | direction of the directing party, the excluded fiduciary is | 22 | | not liable for any loss resulting directly or indirectly | 23 | | from following any such direction, including but not | 24 | | limited to compliance regarding the valuation of assets for | 25 | | which there is no readily available market value; | 26 | | (2) if a governing instrument provides that an excluded |
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| 1 | | fiduciary is to act or omit to act only with the consent of | 2 | | a directing party, then except in cases of willful | 3 | | misconduct on the part of the excluded fiduciary, the | 4 | | excluded fiduciary is not liable for any loss resulting | 5 | | directly or indirectly from any act taken or omitted as a | 6 | | result of such directing party's failure to provide such | 7 | | consent after having been asked to do so by the excluded | 8 | | fiduciary; or | 9 | | (3) if a governing instrument provides that, or for any | 10 | | other reason, an excluded fiduciary is required to assume | 11 | | the role or responsibilities of a directing party, then | 12 | | except in cases of willful misconduct, the excluded | 13 | | fiduciary is not liable for any loss resulting directly or | 14 | | indirectly from any act taken or omitted in complying with | 15 | | that requirement. | 16 | | (g) Submission to court jurisdiction; effect on directing | 17 | | party. By accepting an appointment to serve as a directing | 18 | | party of a trust that is subject to the laws of this State, the | 19 | | directing party submits to the jurisdiction of the courts of | 20 | | this State even if investment advisory agreements or other | 21 | | related agreements provide otherwise, and the directing party | 22 | | may be made a party to any action or proceeding if issues | 23 | | relate to a decision or action of the directing party. | 24 | | (h) Duty to inform excluded fiduciary. Each directing party | 25 | | shall keep the excluded fiduciary and any other directing party | 26 | | reasonably informed regarding the administration of the trust |
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| 1 | | with respect to any specific duty or function being performed | 2 | | by the directing party to the extent that the duty or function | 3 | | would normally be performed by the excluded fiduciary or to the | 4 | | extent that providing such information to the excluded | 5 | | fiduciary or other directing party is reasonably necessary for | 6 | | the excluded fiduciary or other directing party to perform its | 7 | | duties, and the directing party shall provide such information | 8 | | as reasonably requested by the excluded fiduciary or other | 9 | | directing party. Neither the performance nor the failure to | 10 | | perform of a directing party's duty to inform as provided in | 11 | | this subsection affects whatsoever the limitation on the | 12 | | liability of the excluded fiduciary as provided in this | 13 | | Section. | 14 | | (i) Reliance on counsel. An excluded fiduciary may, but is | 15 | | not required to, obtain and rely upon an opinion of counsel on | 16 | | any matter relevant to this Section. | 17 | | (j) Applicability. On and after its effective date, this | 18 | | Section applies to: | 19 | | (1) all existing and future trusts that appoint or | 20 | | provide for a directing party, including but not limited to | 21 | | a party granted power or authority effectively comparable | 22 | | in substance to that of a directing party as provided in | 23 | | this Section; or | 24 | | (2) any existing or future trust that: | 25 | | (A) is modified in accordance with applicable law | 26 | | or the terms of the governing instrument to appoint or |
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| 1 | | provide for a directing party; or | 2 | | (B) is modified to appoint or provide for a | 3 | | directing party, including but not limited to a party | 4 | | granted power or authority effectively comparable in | 5 | | substance to that of a directing party, in accordance | 6 | | with (i) a court order, or (ii) a nonjudicial | 7 | | settlement agreement made in accordance with Section | 8 | | 16.1, whether or not such order or agreement specifies | 9 | | that this Section governs the responsibilities, | 10 | | actions, and liabilities of persons designated as a | 11 | | directing party or excluded fiduciary. | 12 | | (760 ILCS 5/16.4 new) | 13 | | Sec. 16.4. Trustee's power to invade principal in trust. | 14 | | (a) Definitions. In this Section: | 15 | | (1) "Absolute discretion" means the right to | 16 | | distribute principal that is not limited or modified in any | 17 | | manner to or for the benefit of one or more beneficiaries | 18 | | of the trust. A power to invade principal that includes | 19 | | purposes such as best interests, welfare, comfort, or | 20 | | happiness shall constitute absolute discretion. | 21 | | (2) "Appointed trust" means any irrevocable trust to | 22 | | which principal is appointed in accordance with subsection | 23 | | (b) or (c). | 24 | | (3) "Authorized trustee" means an entity or | 25 | | individual, other than the settlor, who has authority under |
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| 1 | | the terms of an invaded trust to invade the principal of | 2 | | the trust for the benefit of one or more current | 3 | | beneficiaries. | 4 | | (4) "Code" means the United States Internal Revenue | 5 | | Code of 1986, as amended from time to time, including | 6 | | corresponding provisions of subsequent internal revenue | 7 | | laws and corresponding provisions of State law. | 8 | | (5) "Current beneficiary" or "current beneficiaries" | 9 | | means the person or persons who are currently receiving or | 10 | | eligible to receive distributions of principal or income | 11 | | from the trustee on the date of the exercise of the power. | 12 | | (6) "Invade" means the power to pay directly to the | 13 | | beneficiary of a trust or make application for the benefit | 14 | | of the beneficiary. | 15 | | (7) "Invaded trust" means an existing irrevocable | 16 | | inter vivos or testamentary trust part or all of the | 17 | | principal of which is appointed under subsection (b) or | 18 | | (c). | 19 | | (8) "Limited power of appointment" means the power to | 20 | | appoint the principal or income of the trust to a person or | 21 | | entity other than the trustee, the trustee's creditors, the | 22 | | trustee's estate or the creditors of the trustee's estate. | 23 | | (9) "Principal" includes the income of the trust at the | 24 | | time of the exercise of the power that is not currently | 25 | | required to be distributed, including accrued and | 26 | | accumulated income. |
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| 1 | | (10) "Successor beneficiary" means any beneficiary | 2 | | other than the current and remainder beneficiaries, but | 3 | | does not include a potential appointee of a power of | 4 | | appointment held by a beneficiary. | 5 | | (b) Appointment to appointed trust if absolute discretion. | 6 | | An authorized trustee who has the absolute discretion to invade | 7 | | the principal of a trust may appoint part or all of the | 8 | | principal of the trust in favor of a trustee of an appointed | 9 | | trust for the benefit of one, more than one, or all of the | 10 | | current beneficiaries of the invaded trust (to the exclusion of | 11 | | any one or more of such beneficiaries) and for the benefit of | 12 | | one, more than one, or all of the remainder and successor | 13 | | beneficiaries of the invaded trust (to the exclusion of any one | 14 | | or more of such beneficiaries). | 15 | | (1) If the authorized trustee exercises the power under | 16 | | this subsection, the authorized trustee may grant a power | 17 | | of appointment (including a presently exercisable power of | 18 | | appointment) in the appointed trust to one or more of the | 19 | | current beneficiaries of the invaded trust, provided that | 20 | | the beneficiary granted a power to appoint could receive | 21 | | the principal outright under the terms of the invaded | 22 | | trust. | 23 | | (2) If the authorized trustee grants a power of | 24 | | appointment, the class of permissible appointees in favor | 25 | | of whom a beneficiary may exercise the power of appointment | 26 | | granted in the appointed trust may be broader than or |
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| 1 | | otherwise different from the current, successor, and | 2 | | remainder beneficiaries of the invaded trust. | 3 | | (3) If the beneficiary or beneficiaries of the invaded | 4 | | trust are described as a class of persons, the beneficiary | 5 | | or beneficiaries of the appointed trust may include one or | 6 | | more persons of such class who become includible in the | 7 | | class after the appointment to the appointed trust. | 8 | | (c) Appointment to appointed trust if no absolute | 9 | | discretion. An authorized trustee who has the power to invade | 10 | | the principal of a trust, but who does not have the absolute | 11 | | discretion to invade the principal of the trust, may appoint | 12 | | part or all of the principal of the trust in favor of a trustee | 13 | | of an appointed trust, provided that the current beneficiaries | 14 | | of the appointed trust shall be the same as the current | 15 | | beneficiaries of the invaded trust and the remainder and | 16 | | successor beneficiaries of the appointed trust shall be the | 17 | | same as the remainder and successor beneficiaries of the | 18 | | invaded trust. | 19 | | (1) If the authorized trustee exercises the power under | 20 | | this subsection, the appointed trust shall include the same | 21 | | language authorizing the trustee to invade the income or | 22 | | principal of a trust as specified in the invaded trust. | 23 | | (2) If the beneficiary or beneficiaries of the invaded | 24 | | trust are described as a class of persons, the beneficiary | 25 | | or beneficiaries of the appointed trust shall include all | 26 | | persons who become includible in the class after the |
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| 1 | | appointment to the appointed trust. | 2 | | (3) If the authorized trustee exercises the power under | 3 | | this subsection and if the invaded trust grants a power of | 4 | | appointment to a beneficiary of the trust, the appointed | 5 | | trust shall grant such power of appointment in the | 6 | | appointed trust and the class of permissible appointees | 7 | | shall be the same as in the invaded trust. | 8 | | (d) Limited power of appointment. An authorized trustee's | 9 | | exercise of the power to invade the principal of a trust under | 10 | | subsections (b) and (c) shall be considered the exercise of a | 11 | | limited power of appointment. | 12 | | (e) Term of appointed trust. The appointed trust to which | 13 | | an authorized trustee appoints the assets of the invaded trust | 14 | | may have a term that is longer than the term specified in the | 15 | | invaded trust, including but not limited to a term measured by | 16 | | the lifetime of a current beneficiary; provided, however, that | 17 | | the appointed trust shall be limited to the same permissible | 18 | | period of the rule against perpetuities that applied to the | 19 | | invaded trust. | 20 | | (f) Divided discretion. If an authorized trustee has | 21 | | absolute discretion to invade the principal of a trust and the | 22 | | same trustee or another trustee has the power to invade | 23 | | principal under the trust instrument which power does not | 24 | | constitute absolute discretion, such authorized trustee having | 25 | | absolute discretion may exercise the power of appointment under | 26 | | subsection (b). |
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| 1 | | (g) Need to invade not required. An authorized trustee may | 2 | | exercise the power to appoint in favor of an appointed trust | 3 | | under subsections (b) and (c) whether or not there is a current | 4 | | need to invade principal under the terms of the invaded trust. | 5 | | (h) Later discovered assets. To the extent the authorized | 6 | | trustee does not provide otherwise: | 7 | | (1) the appointment of all of the assets comprising the | 8 | | principal of the invaded trust in favor of an appointed | 9 | | trust is deemed to include subsequently discovered assets | 10 | | otherwise belonging to the invaded trust and undistributed | 11 | | principal paid to or acquired by the invaded trust | 12 | | subsequent to the appointment in favor of the appointed | 13 | | trust. | 14 | | (2) the appointment of part but not all of the assets | 15 | | comprising the principal of the invaded trust in favor of | 16 | | an appointed trust does not include subsequently | 17 | | discovered assets belonging to the invaded trust and | 18 | | principal paid to or acquired by the invaded trust | 19 | | subsequent to the appointment in favor of the appointed | 20 | | trust; such assets remain the assets of the invaded trust. | 21 | | (i) Other authority to appoint in further trust. This | 22 | | Section shall not be construed to abridge the right of any | 23 | | trustee to appoint property in further trust that arises in | 24 | | accordance with the terms of the governing instrument of a | 25 | | trust, any provision of applicable law, a court order, or a | 26 | | nonjudicial settlement agreement in accordance with Section |
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| 1 | | 16.1. | 2 | | (j) No duty to invade. Nothing in this Section is intended | 3 | | to create or imply a duty to exercise a power to invade | 4 | | principal, and no inference of impropriety whatsoever is to be | 5 | | made as a result of an authorized trustee not exercising the | 6 | | power conferred under subsection (b) or (c). | 7 | | (k) Express prohibition. A power authorized by subsection | 8 | | (b) or (c) may not be exercised if expressly prohibited by the | 9 | | terms of the governing instrument, but a general prohibition of | 10 | | the amendment or revocation of the invaded trust or a provision | 11 | | that constitutes a spendthrift clause does not prohibit or | 12 | | limit the exercise of a power under subsection (b) or (c). | 13 | | (l) Restrictions. An authorized trustee may not exercise a | 14 | | power authorized by subsection (b) or (c) to effect any of the | 15 | | following: | 16 | | (1) to reduce, limit or modify any beneficiary's | 17 | | current right to a mandatory distribution of income or | 18 | | principal, a mandatory annuity or unitrust interest, a | 19 | | right to withdraw a percentage of the value of the trust or | 20 | | a right to withdraw a specified dollar amount provided that | 21 | | such mandatory right has come into effect with respect to | 22 | | the beneficiary; | 23 | | (2) to decrease or indemnify against a trustee's | 24 | | liability or exonerate a trustee from liability for failure | 25 | | to exercise reasonable care, diligence and prudence; | 26 | | (3) to eliminate a provision granting another person |
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| 1 | | the right to remove or replace the authorized trustee | 2 | | exercising the power under subsection (b) or (c); | 3 | | (4) to make a binding and conclusive determination of | 4 | | the value of any asset for purposes of distribution, | 5 | | allocation or otherwise; or | 6 | | (5) to reduce, limit or modify the perpetuities | 7 | | provision specified in the invaded trust in the appointed | 8 | | trust, unless the invaded trust expressly permits the | 9 | | trustee to do so. | 10 | | (m) Exception. Notwithstanding the provisions of paragraph | 11 | | (1) of subsection (l) but subject to the other limitations in | 12 | | this Section, an authorized trustee may exercise a power | 13 | | authorized by subsection (b) or (c) to appoint to an appointed | 14 | | trust; provided, however, that the exercise of such power does | 15 | | not subject the appointed trust to claims of reimbursement by | 16 | | any private or government body and does not at any time | 17 | | interfere with, reduce the amount of, or jeopardize an | 18 | | individual's entitlement to government benefits, including but | 19 | | not limited to Supplemental Security Income and Medicaid. | 20 | | (n) Tax limitations. If any contribution to the invaded | 21 | | trust qualified for the annual exclusion under Section 2503(b) | 22 | | of the Code, the marital deduction under Section 2056(a) or | 23 | | 2523(a) of the Code, or the charitable deduction under Section | 24 | | 170(a), 642(c), 2055(a) or 2522(a) of the Code, is a direct | 25 | | skip qualifying for treatment under Section 2642(c) of the | 26 | | Code, or qualified for any other specific tax benefit that |
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| 1 | | would be lost by the existence of the authorized trustee's | 2 | | authority under subsection (b) or (c) for income, gift, estate, | 3 | | or generation-skipping transfer tax purposes under the Code, | 4 | | then the authorized trustee shall not have the power to appoint | 5 | | the principal of a trust in accordance with subsection (b) or | 6 | | (c) in a manner that would prevent the contribution to the | 7 | | invaded trust from qualifying for or would reduce the | 8 | | exclusion, deduction, or other tax benefit that was originally | 9 | | claimed with respect to that contribution. | 10 | | (1) Notwithstanding the other provisions of this | 11 | | subsection (n), the authorized trustee may exercise the | 12 | | power to appoint part or all of the invaded trust to a | 13 | | trust as to which the settlor of the invaded trust is not | 14 | | considered the owner under Subpart E of Part I of | 15 | | Subchapter J of Chapter 1 of Subtitle A of the Code even if | 16 | | the settlor is considered such owner of the invaded trust. | 17 | | Nothing in this Section shall be construed as preventing | 18 | | the authorized trustee from appointing part or all of the | 19 | | invaded trust to an appointed trust that is a trust as to | 20 | | which the settlor of the invaded trust is considered the | 21 | | owner under Subpart E of Part I of Subchapter J of Chapter | 22 | | 1 of Subtitle A of the Code. | 23 | | (2) During any period when the invaded trust owns | 24 | | subchapter S corporation stock, an authorized trustee may | 25 | | not exercise a power authorized by subsection (b) or (c) to | 26 | | appoint part or all of the S corporation stock to an |
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| 1 | | appointed trust that is not a permitted shareholder under | 2 | | Section 1361(c)(2) of the Code. | 3 | | (3) During any period when the invaded trust owns an | 4 | | interest in property subject to the minimum distribution | 5 | | rules of Section 401(a)(9) of the Code, an authorized | 6 | | trustee may not exercise a power authorized by subsection | 7 | | (b) or (c) to appoint part or all of the interest in such | 8 | | property to an appointed trust that would result in the | 9 | | shortening of the minimum distribution period to which the | 10 | | property is subject in the invaded trust. | 11 | | (o) Limits on compensation of trustee. | 12 | | (1) Unless a court upon application of the trustee | 13 | | directs otherwise, an authorized trustee may not exercise a | 14 | | power authorized by subsection (b) or (c) to change the | 15 | | provisions regarding the determination of the compensation | 16 | | of any trustee. | 17 | | (2) The compensation payable to the trustee or trustees | 18 | | of the invaded trust may continue to be paid to the | 19 | | trustees of the appointed trust during the term of the | 20 | | appointed trust and may be determined in the same manner as | 21 | | otherwise would have applied in the invaded trust; | 22 | | provided, however, that no trustee may receive any | 23 | | termination fee or other compensation imposed upon assets | 24 | | distributed due to the appointment of property from the | 25 | | invaded trust to an appointed trust pursuant to subsection | 26 | | (b) or (c). |
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| 1 | | (p) Written instrument. The exercise of a power to invade | 2 | | principal under subsection (b) or (c) must be made by an | 3 | | instrument in writing, signed and acknowledged by the trustee, | 4 | | and filed with the records of the invaded trust and the | 5 | | appointed trust. | 6 | | (q) Terms of appointed trust. Any reference to the | 7 | | governing instrument or terms of the governing instrument in | 8 | | this Act includes the terms of an appointed trust established | 9 | | in accordance with this Section. | 10 | | (r) Grantor. The grantor of an invaded trust is considered | 11 | | for all purposes to be the grantor of any appointed trust | 12 | | established in accordance with this Section. | 13 | | (s) Application. Unless the invaded trust expressly | 14 | | provides otherwise, this Section applies to the following | 15 | | trusts: | 16 | | (1) an inter vivos or testamentary trust governed by | 17 | | the laws of this State, including a trust whose governing | 18 | | law has been changed to the laws of this State; and | 19 | | (2) an inter vivos or testamentary trust that has a | 20 | | trustee who is an individual domiciled in this State or a | 21 | | trustee which is an entity having an office in this State, | 22 | | provided that a majority of the trustees select this State | 23 | | as the location for the principal place of administration | 24 | | of the trust by an instrument in writing, signed and | 25 | | acknowledged by a majority of the trustees, and the | 26 | | instrument exercising this selection is maintained with |
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| 1 | | the records of the invaded trust and the appointed trust. | 2 | | (760 ILCS 5/16.5 new) | 3 | | Sec. 16.5. Qualified dispositions in trust. | 4 | | (a) Purpose. The purpose of this Section is to provide a | 5 | | means for establishing a Domestic Asset Protection Trust, which | 6 | | is a self-settled irrevocable spendthrift trust, whereby the | 7 | | assets held in the trust will be protected from creditor's | 8 | | claims, as long as the transfers are not fraudulent and are | 9 | | completed at a time that the transferor has no need of asset | 10 | | protection as determined under this Section and applicable law | 11 | | of this State. | 12 | | (b) Definitions. In this Section: | 13 | | (1) "Claim" means a right to payment, whether or not | 14 | | the right is reduced to judgment, liquidated, | 15 | | unliquidated, fixed, contingent, matured, unmatured, | 16 | | disputed, undisputed, legal, equitable, secured or | 17 | | unsecured. | 18 | | (2) "Code" means the United States Internal Revenue | 19 | | Code of 1986, as amended from time to time, including | 20 | | corresponding provisions of subsequent internal revenue | 21 | | laws. | 22 | | (3) "Creditor" means, with respect to a transferor, a | 23 | | person who has a claim. | 24 | | (4) "Debt" means liability on a claim. | 25 | | (5) "Disposition" means a transfer, conveyance or |
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| 1 | | assignment of property (including a change in the legal | 2 | | ownership of property occurring upon the substitution of | 3 | | one trustee for another or the addition of one or more new | 4 | | trustees), or the exercise of a power so as to cause a | 5 | | transfer of property, to a trustee or trustees, but shall | 6 | | not include the release or relinquishment of an interest in | 7 | | property that was the subject of a qualified disposition. | 8 | | (6) "Person" means an individual, a corporation, a | 9 | | company, an association, a firm, a partnership, a society, | 10 | | a joint-stock company, business trust, estate, trust, | 11 | | limited liability company, limited liability partnership, | 12 | | joint venture, government, or any other legal or commercial | 13 | | entity. | 14 | | (7) "Property" means real property, personal property, | 15 | | and any interests in real, personal, or other property. | 16 | | (8) "Qualified disposition" means a disposition by or | 17 | | from a transferor to a qualified trustee or qualified | 18 | | trustees, with or without consideration by means of a trust | 19 | | instrument. | 20 | | (9) "Qualified trustee" means a person who: | 21 | | (A) in the case of a natural person, is a resident | 22 | | of this State other than the transferor or, in all | 23 | | other cases, is authorized by the law of this State to | 24 | | act as a trustee and whose activities are subject to | 25 | | supervision by the Federal Deposit Insurance | 26 | | Corporation, the Director of the Division of Banking of |
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| 1 | | the Department of Financial and Professional | 2 | | Regulation, the Comptroller of the Currency, the | 3 | | Office of Thrift Supervision, or any successor to such | 4 | | an agency; | 5 | | (B) maintains or arranges for custody in this State | 6 | | of some or all of the property that is the subject of | 7 | | the qualified disposition, maintains records for the | 8 | | trust on an exclusive or nonexclusive basis, prepares | 9 | | or arranges for the preparation of fiduciary income tax | 10 | | returns for the trust or otherwise materially | 11 | | participates in the administration of the trust; and | 12 | | (C) is not the transferor nor a natural person who | 13 | | is a nonresident of this State nor an entity that is | 14 | | not authorized by the law of this State to act as a | 15 | | trustee or whose activities are not subject to | 16 | | supervision as provided in subparagraph (b)(9)(A). | 17 | | (10) "Spouse" and "former spouse" mean only persons to | 18 | | whom the transferor was married at, or before, the time the | 19 | | qualified disposition is made. | 20 | | (11) "Transferor" means a person who, directly or | 21 | | indirectly, makes a disposition or causes a disposition to | 22 | | be made as an owner of property, as a trustee, or as a | 23 | | holder of a power of appointment that authorizes the holder | 24 | | to appoint in favor of any one or more of the holder, the | 25 | | holder's creditors, the holder's estate or the creditors of | 26 | | the holder's estate. |
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| 1 | | (12) "Trust instrument" means an instrument appointing | 2 | | a qualified trustee for the property that is the subject of | 3 | | a disposition, which instrument: | 4 | | (A) expressly incorporates the law of this State to | 5 | | govern the validity and construction of the trust, or | 6 | | permits, whether expressly or otherwise, the transfer | 7 | | of the situs of a trust having a non-Illinois trustee | 8 | | to a qualified trustee who has an office in this State | 9 | | for the administration of the trust and who makes this | 10 | | State the principal place of administration of the | 11 | | trust; | 12 | | (B) is irrevocable, but a trust instrument shall | 13 | | not be deemed revocable on account of its inclusion of | 14 | | one or more of the following: | 15 | | (i) a transferor's power to veto a | 16 | | distribution from the trust; | 17 | | (ii) an inter vivos power of appointment, | 18 | | other than an inter vivos power to appoint to the | 19 | | transferor, the transferor's creditors, the | 20 | | transferor's estate or the creditors of the | 21 | | transferor's estate, exercisable by will or other | 22 | | written instrument of the transferor effective | 23 | | only upon the transferor's death; | 24 | | (iii) a testamentary power of appointment; | 25 | | (iv) the transferor's potential or actual | 26 | | receipt of income, including rights to such income |
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| 1 | | retained in the trust instrument; | 2 | | (v) the transferor's potential or actual | 3 | | receipt of income or principal from a charitable | 4 | | remainder unitrust or charitable remainder annuity | 5 | | trust as such terms are defined in Section 664 of | 6 | | the Code; and the transferor's right, at any time | 7 | | and from time to time by written instrument | 8 | | delivered to the trustee, to release such | 9 | | transferor's retained interest in such a trust, in | 10 | | whole or in part, in favor of a charitable | 11 | | organization that has or charitable organizations | 12 | | that have a succeeding beneficial interest in such | 13 | | trust; | 14 | | (vi) the transferor's receipt each year of a | 15 | | percentage (not to exceed 5%) specified in the | 16 | | trust instrument of the initial value of the trust | 17 | | assets or the value determined from time to time | 18 | | pursuant to the trust instrument or of a fixed | 19 | | amount that on an annual basis does not exceed 5% | 20 | | of the initial value of the trust assets or of the | 21 | | current value of the trust assets as determined | 22 | | from time to time in average of multiple years or | 23 | | otherwise; | 24 | | (vii) the transferor's potential or actual | 25 | | receipt or use of principal if such potential or | 26 | | actual receipt or use of principal would be the |
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| 1 | | result of a qualified trustee acting: | 2 | | (aa) in the discretion of such qualified | 3 | | trustee or qualified trustees; | 4 | | (bb) pursuant to a standard that governs | 5 | | the distribution of principal and does not | 6 | | confer upon the transferor a substantially | 7 | | unfettered right to the receipt or use of the | 8 | | principal; | 9 | | (cc) at the discretion of an advisor who is | 10 | | acting in such advisor's discretion; or | 11 | | pursuant to a standard that governs the | 12 | | distribution of principal and does not confer | 13 | | upon the transferor a substantially unfettered | 14 | | right to the receipt of or use of principal; | 15 | | (viii) the transferor's right to remove a | 16 | | trustee or advisor and to appoint a new trustee or | 17 | | advisor; | 18 | | (ix) the transferor's potential or actual use | 19 | | of real property held under a qualified personal | 20 | | residence trust with the meaning of such term as | 21 | | described in Section 2702(c) of the Code or the | 22 | | transferor's possession and enjoyment of a | 23 | | qualified annuity interest within the meaning of | 24 | | such term as described in Treasury Regulation | 25 | | Section 25.2702-5(c)(8) and any successor | 26 | | provision; |
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| 1 | | (x) the transferor's potential or actual | 2 | | receipt of income or principal to pay, in whole or | 3 | | in part, income taxes due on income of the trust if | 4 | | such potential or actual receipt of income or | 5 | | principal is pursuant to a provision in the trust | 6 | | instrument that expressly provides for the payment | 7 | | of such taxes and if such potential or actual | 8 | | receipt of trust property or income from trust | 9 | | property would be the result of a qualified trustee | 10 | | or qualified trustees acting: | 11 | | (aa) in such qualified trustee's | 12 | | discretion or pursuant to a mandatory | 13 | | direction in the trust instrument; or | 14 | | (bb) at the direction of an advisor who is | 15 | | acting in accordance with authority granted | 16 | | such advisor by the terms of the trust; | 17 | | (xi) The ability, whether pursuant to | 18 | | discretion, direction, or the grantor's exercise | 19 | | of a testamentary power of appointment, of a | 20 | | qualified trustee to pay, after the death of the | 21 | | transferor, all or any part of the debts of the | 22 | | transferor outstanding at the time of the | 23 | | transferor's death, the expenses of administering | 24 | | the transferor's estate, or any estate or | 25 | | inheritance tax imposed on or with respect to the | 26 | | transferor's estate; and |
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| 1 | | (C) Provides that the interest of the transferor or | 2 | | other beneficiary in trust property and income from | 3 | | trust property may not be transferred, assigned, | 4 | | pledged, or mortgaged, whether voluntarily or | 5 | | involuntarily, before the qualified trustee actually | 6 | | distributes such trust property or income to the | 7 | | beneficiary, or provides a comparable spendthrift | 8 | | provision having substantially the same effect, and | 9 | | such provision of the trust instrument shall be deemed | 10 | | to be a restriction on the transfer of the transferor's | 11 | | beneficial interest in the trust that is enforceable | 12 | | under applicable nonbankruptcy law within the meaning | 13 | | of Section 541(c)(2) of the Bankruptcy Code (11 U.S.C. | 14 | | Section 541(c)(2)) or any successor provision. | 15 | | (c) Retained interests of transferor. A qualified | 16 | | disposition shall be subject to subsection (d) notwithstanding | 17 | | a transferor's retention of any or all of the powers and rights | 18 | | described in subdivision (b)(12)(B) or the transferor's | 19 | | service as investment trust advisor in accordance with | 20 | | subdivision (b)(9)(D). Except as permitted by subdivisions | 21 | | (b)(9)(D) and (b)(12)(B), a transferor shall have no rights or | 22 | | authority with respect to the property that is the subject of a | 23 | | qualified disposition or income from such property, and any | 24 | | agreement or understanding purporting to grant or permit the | 25 | | retention of any greater rights or authority shall be void. | 26 | | (d) Avoidance of qualified dispositions. |
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| 1 | | (1) The courts of this State have exclusive | 2 | | jurisdiction over any action brought with respect to a | 3 | | qualified disposition. Notwithstanding any other | 4 | | applicable law of this State, no action of any kind, | 5 | | including but not limited to an action to enforce a | 6 | | judgment entered by a court or other body having | 7 | | adjudicative authority, may be brought for an attachment or | 8 | | other provisional remedy against property that is the | 9 | | subject of a qualified disposition or for avoidance of a | 10 | | qualified disposition unless (A) such action is brought | 11 | | pursuant to the provisions of Section 5 or 6 of the Uniform | 12 | | Fraudulent Transfer Act and (B) in the case of a creditor | 13 | | whose claim arose after a qualified disposition, the | 14 | | qualified disposition was made with intent to defraud such | 15 | | creditor. | 16 | | (2) In any action brought to avoid a qualified | 17 | | disposition, the creditor's claim under subsection (c) is | 18 | | extinguished unless: | 19 | | (A) The creditor's claim arose before the | 20 | | qualified disposition was made, and the action is | 21 | | brought within the limitations of Section 10 of the | 22 | | Uniform Fraudulent Transfer Act as in effect on the | 23 | | later of the date of the qualified disposition or the | 24 | | effective date of this amendatory Act of the 97th | 25 | | General Assembly; and | 26 | | (B) Notwithstanding the provisions of Section 10 |
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| 1 | | of the Uniform Fraudulent Transfer Act, the creditor's | 2 | | claim arose concurrent with or subsequent to the | 3 | | qualified disposition and the action is brought within | 4 | | 4 years after the qualified disposition is made. | 5 | | (3) For the purposes of this Section, a qualified | 6 | | disposition that is made by means of a disposition by a | 7 | | transferor who is a trustee is deemed to have been made as | 8 | | of the time (whether before, on, or after the effective | 9 | | date of this amendatory Act of the 97th General Assembly) | 10 | | the property that is the subject of the qualified | 11 | | disposition was originally transferred to the transferor | 12 | | (or any predecessor trustee) if the qualified disposition | 13 | | is made in a form that otherwise meets the requirements of | 14 | | subdivisions (b)(12)(B) and (C). | 15 | | (4) Notwithstanding any applicable Illinois law to the | 16 | | contrary, a creditor, including a creditor whose claim | 17 | | arose before or after a qualified disposition, or any other | 18 | | person may have only such rights with respect to a | 19 | | qualified disposition as are provided in this Section, and | 20 | | no such creditor nor any other person may have any claim or | 21 | | cause of action against the trustee or any advisor of a | 22 | | trust that is the subject of a qualified disposition, or | 23 | | against any person involved in the counseling, drafting, | 24 | | preparation, execution, or funding of a trust that is the | 25 | | subject of a qualified disposition. | 26 | | (5) Notwithstanding any other provision of applicable |
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| 1 | | law of this State, no action of any kind, including but not | 2 | | limited to an action to enforce a judgment entered by a | 3 | | court or other body having adjudicative authority, may be | 4 | | brought at law or in equity against the trustee or any | 5 | | advisor of a trust that is the subject of a qualified | 6 | | disposition, if as of the date such action is brought an | 7 | | action by a creditor with respect to such qualified | 8 | | disposition would be barred in accordance with this | 9 | | Section. | 10 | | (6) In circumstances where more than one qualified | 11 | | disposition is made by means of the same trust instrument, | 12 | | then: | 13 | | (A) the making of a subsequent qualified | 14 | | disposition is disregarded in determining whether a | 15 | | creditor's claim with respect to a prior qualified | 16 | | disposition is extinguished as provided in this | 17 | | Section; and | 18 | | (B) any distribution to a beneficiary is deemed to | 19 | | have been made from the latest such qualified | 20 | | disposition. | 21 | | (7) If, in any action brought against a corporate | 22 | | trustee or a fiduciary of a trust that is the result of a | 23 | | qualified disposition, a court takes any action by which | 24 | | such court declines to apply the law of this State in | 25 | | determining the validity, construction or administration | 26 | | of such trust, or the effect of a spendthrift provision of |
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| 1 | | such trust, such trustee must immediately upon such court's | 2 | | action and without the further order of any court, cease in | 3 | | all respects to be trustee of such trust and a successor | 4 | | trustee must immediately succeed as trustee in accordance | 5 | | with the terms of the trust instrument or, if the trust | 6 | | instrument does not provide for a successor trustee and the | 7 | | trust would otherwise be without a trustee upon the | 8 | | application by petition to a court of this State by any | 9 | | beneficiary of such trust, the court shall appoint a | 10 | | successor trustee upon such terms and conditions as it | 11 | | determines to be consistent with the purposes of such trust | 12 | | and this Section. Upon such trustee ceasing to be trustee, | 13 | | such trustee shall have no power or authority other than to | 14 | | convey the trust property to the successor trustee named in | 15 | | the trust instrument or appointed by the court in | 16 | | accordance with this Section. | 17 | | (e) Limitations on qualified dispositions. With respect to | 18 | | the limitations imposed by this Section on actions by creditors | 19 | | of a transferor to avoid a qualified disposition, such | 20 | | limitations do not apply to certain debts and claims as | 21 | | follows: indebtedness, and only to the extent of such debt, to | 22 | | any person on account of an agreement or order of court for the | 23 | | payment of support, including but not limited to child support | 24 | | or maintenance in favor of such transferor's spouse, former | 25 | | spouse or children, or for a division or distribution of | 26 | | property in favor of such transferor's spouse or former spouse, |
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| 1 | | but not including any claim for renunciation, spouse's award, | 2 | | or child's award under the Probate Act of 1975. | 3 | | (f) Effect of avoidance of qualified dispositions. | 4 | | (1) A qualified disposition may be avoided only to the | 5 | | extent necessary to satisfy the transferor's debt to the | 6 | | creditor at whose instance the disposition had been | 7 | | avoided, together with such costs, including attorney | 8 | | fees, as the court may allow. | 9 | | (2) In the event any qualified disposition is avoided | 10 | | in accordance with this Section, then: | 11 | | (A) if the court is satisfied that a trustee has | 12 | | not acted in bad faith in accepting or administering | 13 | | the property that is the subject of the qualified | 14 | | disposition: | 15 | | (i) such trustee has a first and paramount lien | 16 | | against the property that is the subject of the | 17 | | qualified disposition in an amount equal to the | 18 | | entire cost, including attorney fees, incurred by | 19 | | such trustee in the reasonable and necessary | 20 | | defense of the action or proceedings to avoid the | 21 | | qualified disposition; and | 22 | | (ii) for purposes of subdivision (f)(2)(A)(i), | 23 | | it is presumed that such trustee did not act in bad | 24 | | faith merely by accepting such property. | 25 | | (B) If the court is satisfied that a beneficiary of | 26 | | a trust has not acted in bad faith, the avoidance of |
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| 1 | | the qualified disposition is subject to the right of | 2 | | such beneficiary to retain any distribution made prior | 3 | | to the creditor's commencement of an action to avoid | 4 | | the qualified disposition. | 5 | | (C) A creditor has the burden of proving that a | 6 | | trustee or beneficiary acted in bad faith by clear and | 7 | | convincing evidence except that, in the case of a | 8 | | beneficiary who is also the transferor, the burden on | 9 | | the creditor is to prove that the | 10 | | transferor-beneficiary acted in bad faith by a | 11 | | preponderance of the evidence. The preceding sentence | 12 | | provides a substantive and not a procedural right. | 13 | | (3) Notwithstanding any other applicable law of this | 14 | | State, a creditor has no right against the interest of a | 15 | | beneficiary in a trust solely because such beneficiary has | 16 | | the right to authorize or direct the trustee to pay all or | 17 | | part of the trust property in satisfaction of estate or | 18 | | inheritance taxes imposed upon or with respect to the | 19 | | beneficiary's estate, or the debts of the beneficiary's | 20 | | estate, unless such beneficiary actually directs the | 21 | | payment of such taxes, debts, or expenses and then only to | 22 | | the extent of such direction. | 23 | | (g) Advisors. | 24 | | (1) For purposes of this Section, the term "advisor" | 25 | | includes a trust investment advisor, a trust distribution | 26 | | advisor, a trust protector or any other person or persons |
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| 1 | | who, in addition to or to the exclusion of a qualified | 2 | | trustee, holds one or more trust powers. | 3 | | (2) Nothing in this Section shall preclude a transferor | 4 | | from appointing one or more advisors, including but not | 5 | | limited to: | 6 | | (A) an advisor who has authority under the terms of | 7 | | the trust instrument to remove and appoint qualified | 8 | | trustees or trust advisors; | 9 | | (B) an advisor who has authority under the terms of | 10 | | the trust instrument to direct, consent to or | 11 | | disapprove distributions from the trust; or | 12 | | (C) an advisor who is a directing party as | 13 | | described in Section 16.3. | 14 | | (3) A person may serve as an investment trust advisor | 15 | | described in Section 16.3 notwithstanding that such person | 16 | | is the transferor of the qualified disposition, but such a | 17 | | person may not otherwise serve as advisor of a trust that | 18 | | is a qualified disposition except with respect to the | 19 | | retention of one or more rights permitted by subdivision | 20 | | (b)(12)(B). | 21 | | (h) Administration. | 22 | | (1) In the event that a qualified trustee of a trust | 23 | | ceases to meet the requirements to be a qualified trustee | 24 | | in accordance with this Section, and there remains no | 25 | | trustee that meets such requirements, such former | 26 | | qualified trustee is deemed to have resigned as of the time |
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| 1 | | of such cessation, and the successor qualified trustee | 2 | | provided for in the trust instrument then becomes the | 3 | | qualified trustee of the trust, or in the absence of any | 4 | | successor qualified trustee provided for in the trust | 5 | | instrument, the court shall appoint a successor qualified | 6 | | trustee, upon application of the settlor, a trustee, or a | 7 | | beneficiary. | 8 | | (2) In the case of a disposition to more than one | 9 | | trustee, a disposition that is otherwise a qualified | 10 | | disposition is not be treated as other than a qualified | 11 | | disposition solely because not all of the trustees are | 12 | | qualified trustees. | 13 | | (3) For purposes of this Section, a qualified trustee | 14 | | is presumed to have discretion with respect to the | 15 | | distribution of principal unless such discretion is | 16 | | expressly denied to such trustee by the terms of the trust | 17 | | instrument. | 18 | | (760 ILCS 5/16.6 new) | 19 | | Sec. 16.6. Modification or termination of irrevocable | 20 | | trust. | 21 | | (a) By consent of trustee and beneficiaries. | 22 | | (1) An irrevocable trust may be modified upon consent | 23 | | of the trustee and all of the beneficiaries if the court | 24 | | concludes that modification is not inconsistent with a | 25 | | material purpose of the trust. |
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| 1 | | (2) An irrevocable trust may be terminated upon consent | 2 | | of the trustee and all of the beneficiaries if the court | 3 | | concludes that continuance of the trust is not necessary to | 4 | | achieve any material purpose of the trust. | 5 | | (3) The court may consider spendthrift provisions as a | 6 | | factor in making a decision under this Section, but a | 7 | | spendthrift provision is not necessarily a material | 8 | | purpose of a trust, and the court is not precluded from | 9 | | modifying or terminating a trust because the trust contains | 10 | | spendthrift provisions. | 11 | | (4) If not all of the beneficiaries consent to a | 12 | | proposed modification or termination of the trust in | 13 | | accordance with this Section, the court may approve the | 14 | | modification or termination if the court is satisfied that: | 15 | | (A) if all of the beneficiaries had consented, the | 16 | | trust could have been modified or terminated under this | 17 | | Section; and | 18 | | (B) the interests of a beneficiary who does not | 19 | | consent receives equitable treatment consistent with | 20 | | the purposes of the trust. | 21 | | (b) Unanticipated circumstances. | 22 | | (1) The court may modify the administrative or | 23 | | dispositive terms of a trust or terminate the trust if, | 24 | | because of circumstances not anticipated by the settlor, | 25 | | modification or termination will further the purposes of | 26 | | the trust. To the extent practicable, the modification must |
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| 1 | | be made in accordance with the settlor's probable | 2 | | intention. | 3 | | (2) The court may modify the administrative terms of a | 4 | | trust if the modification furthers the purposes of the | 5 | | trust or if continuation of the trust on its existing terms | 6 | | would be impracticable, wasteful, or impair the trust's | 7 | | administration. | 8 | | (3) The court may modify or terminate a trust or remove | 9 | | the trustee and appoint a different trustee if such change | 10 | | furthers the purposes of the trust, including but not | 11 | | limited to a finding by the court that the value of the | 12 | | trust property is insufficient to justify the cost of | 13 | | administration. | 14 | | (c) Reformation to correct mistakes. The court may reform | 15 | | the terms of a trust, even if unambiguous, to conform the terms | 16 | | to the settlor's intention if it is proved by clear and | 17 | | convincing evidence that both the settlor's intent and the | 18 | | terms of the trust instrument were affected by a mistake of | 19 | | fact or law, whether in expression or inducement. | 20 | | (d) Modification to achieve settlor's tax objectives. To | 21 | | achieve the settlor's tax objectives, the court may modify the | 22 | | terms of a trust in a manner that is not contrary to the | 23 | | settlor's probable intention. The court may provide that the | 24 | | modification has retroactive effect. | 25 | | (e) Distribution on termination. Upon termination of a | 26 | | trust, or modification of trust provisions regarding |
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| 1 | | termination, in accordance with this Section, the court may | 2 | | order the trust property distributed as agreed by the parties | 3 | | to the agreement or otherwise as the court determines equitable | 4 | | consistent with the purposes of the trust. | 5 | | (f) Charitable trusts. This Section does not apply to a | 6 | | charitable trust until the termination of all charitable | 7 | | interests in the trust. For this purpose, "charitable trust" | 8 | | means a trust that holds funds part or all of which are to be | 9 | | applied for the benefit of an indefinite number of people to | 10 | | provide them with education; religion; relief from poverty, | 11 | | sickness, or disease; a means of establishing themselves in | 12 | | life; public building or recreational facilities; or services | 13 | | that lessen the burden of government, including but not limited | 14 | | to a trust for which a charitable deduction was or is allowed | 15 | | or allowable under the Internal Revenue Code. | 16 | | (g) Modification or termination by agreement. Any | 17 | | modification or termination of a trust that could be approved | 18 | | by a court as provided in this Section alternatively may be | 19 | | completed by a nonjudicial settlement agreement entered into by | 20 | | all interested persons, or their respective representatives, | 21 | | in accordance with Section 16.1 without court action, except | 22 | | that in the case of an agreement to terminate a trust court | 23 | | approval is required in accordance with subparagraph (d)(4)(L) | 24 | | of Section 16.1. | 25 | | (760 ILCS 5/16.7 new) |
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| 1 | | Sec. 16.7. Application. Sections 16.3 through 16.6 of this | 2 | | Act apply to all trusts in existence on the effective date of | 3 | | this amendatory Act of the 97th General Assembly or created | 4 | | after that date. Sections 16.3 through 16.6 shall be construed | 5 | | as pertaining to administration of a trust and shall be | 6 | | available to any trust that is administered in Illinois under | 7 | | Illinois law or that is governed by Illinois law with respect | 8 | | to the meaning and effect of its terms, except to the extent | 9 | | the governing instrument expressly prohibits use of one or more | 10 | | such Sections by specific reference to such one or more | 11 | | Sections. A provision in the governing instrument in the form: | 12 | | "Neither the provisions of Sections 16.3 through 16.6 of the | 13 | | Trusts and Trustees Act nor any corresponding provision of | 14 | | future law may be used in the administration of this trust" or | 15 | | a similar provision demonstrating that intent is sufficient to | 16 | | preclude the use of Sections 16.3 through 16.6.
| 17 | | Section 99. Effective date. This Act takes effect upon | 18 | | becoming law.
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