N.C. Gen. Stat. § 36C-8B-2

(6) "Court" because this term appears without definition in other provisions of the North Carolina Uniform Trust Code and its definition therefore appears to be unnecessary in this Article.

(7) "Charitable purpose" because the term appears only once in this Article in G.S. 36C-8B-3(b) and the substance of the definition was retained by adding language to that section that this Article does not apply to a trust held solely for charitable purposes "described in G.S. 36C-4-405(a)".

(8) "First trust instrument" and "Second trust instrument" because the drafters considered these definitions to be obvious and therefore unnecessary.

(9) "Expanded distributive discretion" because the drafters deleted in Sections 11 and 12 of the Uniform Trust Decanting Act the distinction between "expanded distributive discretion" and "limited distributive discretion" subject to an ascertainable standard.

(10) "Reasonably definite standard" because the drafters concluded that the distinction between it and "ascertainable standard," a term more familiar to practitioners, was an unnecessary complication.

(11) "Record" because the term does not appear in other provisions of the North Carolina Uniform Trust Code and would require extensive amendments to those provisions to make it consistent with the provisions in this Article. The term "instrument" or "trust instrument" was substituted for the word "record" where it appears in the Uniform Trust Decanting Act included in this Article, except as otherwise noted in the North Carolina Comment to G.S. 36C-8B-7.

(12) "Sign" because of the questions it raised concerning proper execution of trust documents.

History

(2017-121, s. 1.)

NORTH CAROLINA COMMENT

The drafters substantially modified Section 2 of the Uniform Trust Decanting Act by including only five of the definitions provided in the Act and commented on below and omitting all the other definitions for the reasons indicated below.

In subdivision (1) the definition of an "authorized fiduciary" having discretion to distribute or direct a trustee to distribute property is broader than former G.S. 36C-8-816.1, which referred only to a "trustee" having such discretion. The definition does not exclude a beneficiary who is acting as a trustee, unlike former G.S. 36C-8-816.1(d), which prohibited a trustee who is a beneficiary from exercising the power to distribute. The definition also includes a fiduciary having the discretion to direct a trustee to distribute property, such as a powerholder who has such authority pursuant to G.S. 36C-8A-2(a)(2).

In subdivision (2) the definition of "current beneficiary" is generally consistent with former G.S. 36C-8-816.1(a)(1). The drafters omitted the second sentence of the definition in the Uniform Trust Decanting Act providing that the term includes a holder of a presently exercisable general power of appointment as unnecessary because it seemed apparent under G.S. 36C-8B-11 that such a person is a current beneficiary in light of those provisions protecting a beneficiary's power of withdrawal which is defined under G.S. 36C-1-103(13) as a presently exercisable general power of appointment.

In subdivision (3) the definition of "decanting power" is generally consistent with former G.S. 36C-8-816.1(b) granting authority to a trustee to distribute property of the first trust to a trustee of a second trust but differs from former G.S. 36C-8-816.1(b) in making it clear that the decanting power includes the power "to modify the terms of the first trust."

In subdivision (4) the definition of "first trust", together with the definition of authorized fiduciary, is generally consistent with the definition of "original trust" in former G.S. 36C-8-816.1(a)(2).

In subdivision (5) the definition of "second trust" differs from former G.S. 36C-8-816.1(a)(3) by specifically including "[a] first trust after modification pursuant to this Article." In contrast, former G.S. 36C-8-816.1(a)(3) provided that "[t]he second trust may be a trust created under the same instrument or under a different instrument."

The Official Comment on these five definitions is as follows:

Authorized Fiduciary. The definition of "authorized fiduciary" includes only a person acting in a fiduciary capacity. Only a fiduciary, subject to fiduciary duties, should have the power to decant. A distribution director who is not a fiduciary should not have the power to decant.

The definition excludes a settlor acting as a trustee. If a settlor is a trustee of an irrevocable trust, gift and estate tax problems could result if the settlor had a decanting power. The definition does not exclude a beneficiary who is acting as a trustee (an "interested trustee") because the act only permits a trustee with expanded distributive discretion to decant in a manner that would change beneficial interests. Typically trusts will not give an interested trustee unascertainable discretion over discretionary distributions because such discretion would create gift and estate tax issues. In the unusual event that a trust does give an interested trustee unascertainable discretion, the trustee will incur the tax effects of holding a general power of appointment whether or not the trustee also has a decanting power.

If the discretion to distribute or to direct the trustee to distribute is held jointly by two or more trustees or other fiduciaries, the "authorized fiduciary" is such trustees or other fiduciaries collectively. If the authorized fiduciary is comprised of two or more fiduciaries, the trust instrument or state law will generally provide whether they must act unanimously or whether they may act by majority or some other percentage vote. For example, Section 703(a) of the Uniform Trust Code provides that trustees who are unable to reach unanimous decision may act by majority decision.

The term also includes a special fiduciary appointed by the court under Section 9, who may exercise the decanting power.

The term also includes a special-needs fiduciary under Section 13 even if such fiduciary does not have discretion to distribute principal of the first trust.

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Current Beneficiary. The term "current beneficiary" means a beneficiary who is currently a distributee or permissible distributee of income or principal. A current beneficiary is a qualified beneficiary described in Section 2(20)(A). A mere holder of a power of appointment is not a current beneficiary unless the power is a presently exercisable general power of appointment. The term does not include the objects of an unexercised inter vivos power of appointment.

Decanting Power or The Decanting Power. The term "decanting power" or "the decanting power" means the power granted in this act to the authorized fiduciary (see Section 2(3)) to distribute all or part of the property of the first trust to a second trust or, alternatively, to modify the terms of the first trust to create the second trust. The term does not include any similar power that may be granted under the terms of the trust instrument or pursuant to common law.

If the terms of the first trust are modified, it is not necessary to treat the second trust as a newly created, separate trust, thus avoiding the need to transfer title of the property of the first trust to the second trust. If all of the property of the first trust is distributed pursuant to an exercise of the decanting power to a separate second trust, then the first trust would terminate. The termination of the first trust may impose certain duties on the trustee such as providing reports to the beneficiaries and filing final income tax returns.

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First Trust. The terms "first trust" and "second trust" (Section 2(23)) are relative to the particular exercise of the decanting power. Thus when the decanting power is exercised over Trust A to make a distribution to Trust B, Trust A is the first trust and Trust B is the second trust with respect to such exercise of the decanting power. If the decanting power is later exercised over Trust B to make a distribution to Trust C, then Trust B would be the first trust and Trust C the second trust with respect to such exercise of the decanting power.

Second Trust. The definition of "second trust" includes (1) an irrevocable trust already in existence, whether created by the settlor of the first trust or a different settlor, (2) a "restatement" of the first trust which could be executed by the authorized fiduciary or another person as the nominal grantor, (3) the first trust as modified to create the second trust, or (4) a new trust executed by the authorized fiduciary or another person as the nominal settlor for the purpose of decanting. A decanting that is implemented by "restating" or modifying the first trust presumably would not require the issuance of a new tax identification number or the retitling of property or a final income tax return for the trust. A decanting that distributes the property of the first trust to another trust presumably would require that the property be retitled. Further, if the first trust was terminated by reason of the decanting, a final income tax return for the first trust would be required.

In the definition of "authorized fiduciary" from the Official Comment set forth above, the second sentence of the second paragraph should be disregarded because, as explained in the North Carolina comments to G.S. 36C-8B-11 and G.S. 36C-8B-12, the drafters chose to eliminate the distinction between decanting pursuant to "expanded distributive discretion" and decanting pursuant to "limited distributive discretion."

In the definition of "decanting power or the decanting power" from the Official Comment set forth above, the reference to Section 2(3) should be understood to refer to subdivision (1) of this section.

Because this Article is adopted as a part of this Chapter, the drafters omitted the following definitions provided in Section 2 of the Uniform Trust Decanting Act as being identical or substantially similar to those in G.S. 36C-1-103: "Ascertainable standard"; "Beneficiary"; "Jurisdiction"; "Person"; "Qualified beneficiary"; "Settlor"; "State"; "Terms of the trust"; and "Trust instrument."

The drafters also omitted the following definitions provided in Section 2 of the Uniform Trust Decanting Act because they are identical or substantially similar to those in G.S. 31D-1-102 of the North Carolina Uniform Power of Appointment Act which the drafters concluded would be applicable to the provisions of this Article: "Appointive property"; "General power of appointment"; "Power of appointment"; "Powerholder"; and "Presently exercisable power of appointment".

The following definitions provided in Section 2 of the Uniform Trust Decanting Act were omitted for the reasons indicated: