ENROLLED
H. B. 3272
(By Delegates Webster and Amores)
[Passed March 10, 2007; in effect ninety days from passage.]
AN ACT to the Code of West Virginia, 1931, as amended, by adding
thereto a new section, designated § 44B-1-104a, relating to
total return unitrusts.
Be it enacted by the Legislature of West Virginia:
That the Code of West Virginia, 1931, as amended, be amended
by adding thereto a new section, designated § 44B-1-104a, to read
as follows:
ARTICLE 1. DEFINITIONS AND FIDUCIARY DUTIES.
§44B-1-104a. Total return unitrust.
(a) As used in this section:
(1) "Disinterested person" means a person who is not a
"related or subordinate party", as defined in I. R. C. §672(c) et
seq., with respect to the person then acting as trustee of the
trust, and excludes the grantor of the trust and any interested
trustee.
(2) "Income Trust" means a trust, created by either an inter
vivos or a testamentary instrument, which directs or permits the
trustee to distribute the net income of the trust to one or more
persons, either in fixed proportions or in amounts or proportions
determined by the trustee, and regardless of whether the trust
directs or permits the trustee to distribute the principal of the
trust to one or more such persons.
(3) "Interested distributee" means a person to whom
distributions of income or principal can currently be made who has
the power to remove the existing trustee and designate as successor
a person who may be a "related or subordinate party" as defined in
I. R. C. §672(c) with respect to such distributee.
(4)"Interested trustee" means: (i) An individual trustee to
whom the net income or principal of the trust can currently be
distributed or would be distributed if the trust were then to
terminate and be distributed; (ii) any individual trustee who may
be removed and replaced by an interested distributee; or (iii) an
individual trustee whose legal obligation to support a beneficiary
may be satisfied by distributions of income and principal of the
trust.
(5) "Total return unitrust" means an income trust, which has
been converted under and meets the provisions of this section.
(6) "Trustee" means all persons acting as trustee of the
trust, except where expressly noted otherwise, whether acting in their discretion or at the direction of one or more persons acting
in a fiduciary capacity.
(7) "Grantor" means an individual who created an inter vivos
or a testamentary trust.
(8) "Unitrust amount" means an amount computed as a percentage
of the fair market value of the trust.
(b) A trustee, other than an interested trustee, or where two
or more persons are acting as trustee a majority of the trustees
who are not an interested trustee, may, in its sole discretion and
without judicial approval: (i) Convert an income trust to a total
return unitrust; (ii) reconvert a total return unitrust to an
income trust; or (iii) change the percentage used to calculate the
unitrust amount or the method used to determine the fair market
value of the trust if:
(1) The trustee adopts a written policy for the trust
providing: (i) In the case of a trust being administered as an
income trust, that future distributions from the trust will be
unitrust amounts rather than net income; (ii) in the case of a
trust being administered as a total return unitrust, that future
distributions from the trust will be net income rather than
unitrust amounts; or (iii) that the percentage used to calculate
the unitrust amount or the method used to determine the fair market
value of the trust will be changed as stated in the policy; and
(2) The trustee sends written notice of its intention to take such action, along with copies of such written policy and this
section, to: (i) The grantor of the trust, if living; (ii) all
living persons who are currently receiving or eligible to receive
distributions of income of the trust; (iii) all living persons who
would receive principal of the trust if the trust were to terminate
at the time of the giving of such notice, without regard to the
exercise of any power of appointment, or, if the trust does not
provide for its termination, all living persons who would receive
or be eligible to receive distributions of income or principal of
the trust if the persons identified in clause (ii) of this
subdivision (2) were deceased; and (iv) all persons acting as
advisor or protector of the trust; and at least one person
receiving notice under each of clauses (ii) and (iii) of
subdivision (2) is legally competent.
(A) Notice of the proposed action need not be given to any
person who consents in writing to the proposed action. The consent
may be executed at any time before or after the proposed action is
taken.
(B) The notice of the proposed action shall state that it is
given pursuant to this section and shall state all of the
following:
(i) The name and mailing address of the trustee;
(ii) The name and telephone number of a person who may be
contacted for additional information;
(iii) A description of the action proposed to be taken and an
explanation of the reasons for the action;
(iv) The time within which objections to the proposed action
can be made, which shall be at least thirty days from the mailing
of the notice of proposed action; and
(v) The date on or after which the proposed action may be
taken or is effective.
(C) A beneficiary may object to the proposed action by mailing
a written objection to the trustee at the address stated in the
notice of proposed action within the time period specified in the
notice of proposed action.
(D) A trustee is not liable to a beneficiary for an action
regarding a matter governed by this chapter if the trustee does not
receive a written objection to the proposed action from the
beneficiary within the applicable period and the other requirements
of this section are satisfied. If no beneficiary entitled to
notice objects under this section, the trustee is not liable to any
current or future beneficiary with respect to the proposed action.
(c) If there is no trustee of the trust other than an
interested trustee, the interested trustee or, where two or more
persons are acting as trustee and are interested trustees, a
majority of such interested trustees may, in its sole discretion
and without judicial approval: (i) Convert an income trust to a
total return unitrust; (ii) reconvert a total return unitrust to an income trust; or (iii) change the percentage used to calculate the
unitrust amount or the method used to determine the fair market
value of the trust if:
(1) The trustee adopts a written policy for the trust
providing: (i) In the case of a trust being administered as an
income trust, that future distributions from the trust will be
unitrust amounts rather than net income; (ii) in the case of a
trust being administered as a total return unitrust, that future
distributions from the trust will be net income rather than
unitrust amounts; or (iii) that the percentage used to calculate
the unitrust amount or the method used to determine the fair market
value of the trust will be changed as stated in the policy;
(2) The trustee appoints a disinterested person who, in its
sole discretion but acting in a fiduciary capacity, determines for
the trustee: (i) The percentage to be used to calculate the
unitrust amount; (ii) the method to be used in determining the fair
market value of the trust; and (iii) which assets, if any, are to
be excluded in determining the unitrust amount;
(3) The trustee sends written notice of its intention to take
such action, along with copies of such written policy and this
section, to: (i) The grantor of the trust, if living; (ii) all
living persons who are currently receiving or eligible to receive
distributions of income of the trust; (iii) all living persons who
would receive principal of the trust if the trust were to terminate at the time of the giving of such notice, without regard to the
exercise of any power of appointment, or, if the trust does not
provide for its termination, all living persons who would receive
or be eligible to receive distributions of income or principal of
the trust if the persons identified in clause (ii) of subdivision
(2) of this section were deceased; and (iv) all persons acting as
advisor or protector of the trust; and at least one person
receiving notice under each of clauses (ii) and (iii) of
subdivision (2) of this section is legally competent.
(A) Notice of the proposed action need not be given to any
person who consents in writing to the proposed action. The consent
may be executed at any time before or after the proposed action is
taken.
(B) The notice of the proposed action shall state that it is
given pursuant to this section and shall state all of the
following:
(i) The name and mailing address of the trustee;
(ii) The name and telephone number of a person who may be
contacted for additional information;
(iii) A description of the action proposed to be taken and an
explanation of the reasons for the action;
(iv) The time within which objections to the proposed action
can be made, which shall be at least thirty days from the mailing
of the notice of proposed action; and
(v) The date on or after which the proposed action may be
taken or is effective.
(C) A beneficiary may object to the proposed action by mailing
a written objection to the trustee at the address stated in the
notice of proposed action within the time period specified in the
notice of proposed action.
(D) A trustee is not liable to a beneficiary for an action
regarding a matter governed by this chapter if the trustee does not
receive a written objection to the proposed action from the
beneficiary within the applicable period and the other requirements
of this section are satisfied. If no beneficiary entitled to
notice objects under this section, the trustee is not liable to any
current or future beneficiary with respect to the proposed action.
(d) If any trustee desires to convert an income trust to a
total return unitrust, reconvert a total return unitrust to an
income trust or change the percentage used to calculate the
unitrust amount or the method used to determine the fair market
value of the trust but does not have the ability to or elects not
to do it under the provisions of subsections (b) or (c) of this
section, the trustee may petition the circuit court of the county
in which the trustee or beneficiary resides, or if the trustee is
a corporate trustee and there is no resident beneficiary, the
circuit court of the county where the trust account is
administered, for such order as the trustee deems appropriate. In the event, however, there is only one trustee of the trust and the
trustee is an interested trustee or in the event there are two or
more trustees of the trust and a majority of them are interested
trustees, the court, in its own discretion or on the petition of
such trustee or trustees or any person interested in the trust, may
appoint a disinterested person who, acting in a fiduciary capacity,
shall present such information to the court as shall be necessary
to enable the court to make its determinations hereunder.
(e) The fair market value of the trust shall be determined at
least annually, using a valuation date or dates or averages of
valuation dates as are deemed appropriate. Assets for which a fair
market value cannot be readily ascertained shall be valued using
the valuation methods as are deemed reasonable and appropriate.
Assets may be excluded from valuation, provided all income received
with respect to the assets is distributed to the extent
distributable in accordance with the terms of the governing
instrument.
(f) The percentage to be used in determining the unitrust
amount shall be a reasonable current return from the trust, in any
event no less than three percent nor more than five percent, taking
into account the intentions of the grantor of the trust as
expressed in the governing instrument, the needs of the
beneficiaries, general economic conditions, projected current
earnings and appreciation for the trust and projected inflation and its impact on the trust.
(g) Following the conversion of an income trust to a total
return unitrust, the trustee:
(1) Shall consider the unitrust amount as paid from net
accounting income determined as if the trust were not a unitrust;
(2) Shall then consider the unitrust amount as paid from
ordinary income not allocable to net accounting income;
(3) After calculating the trust's capital gain net income
described in I. R. C. §1222(9), 26 U. S. C. §1222(9), may consider
the unitrust amount as paid from net short-term capital gain
described in I. R. C. §1222(5), 26 U. S. C. §1222(5) and then from
net long-term capital gain described in I. R. C. §1222(7), 26 U. S.
C. §1222(7); and
(4) Shall then consider the unitrust amount as coming from the
principal of the trust.
(h) In administering a total return unitrust, the trustee may,
in its sole discretion but subject to the provisions of the
governing instrument, determine: (i) The effective date of the
conversion; (ii) the timing of distributions, including provisions
for prorating a distribution for a short year in which a
beneficiary's right to payments commences or ceases; (iii) whether
distributions are to be made in cash or in kind or partly in cash
and partly in kind; (iv) if the trust is reconverted to an income
trust, the effective date of such reconversion; and (v) such other administrative matters as may be necessary or appropriate to carry
out the purposes of this section.
(i)In the case of a trust for which a marital deduction has
been taken for federal tax purposes under I. R. C. §2056 or §2523,
26 U. S. C. §2056 or §2523, the spouse otherwise entitled to
receive the net income of the trust shall have the right, by
written instrument delivered to the trustee, to compel the
reconversion during his or her lifetime of the trust from a total
return unitrust to an income trust, notwithstanding anything in
this section to the contrary.
(j) Conversion to a total return unitrust under the provisions
of this section shall not affect any other provision of the
governing instrument, if any, regarding distributions of principal.
(k) This section shall be construed as pertaining to the
administration of a trust and shall be available to any trust that
is administered under West Virginia law unless:
(1) The governing instrument reflects an intention that the
current beneficiary or beneficiaries are to receive an amount other
than a reasonable current return from the trust;
(2) The trust is a trust described in I. R. C. §170(f)(2)(B)
or I. R. C. §664 (d); or
(3) The governing instrument expressly prohibits use of this
section by specific reference to this section or expressly reflects
the grantor's intent that net income not be calculated as a unitrust amount.
(l) Any trustee or disinterested person who in good faith
takes or fails to take any action under this section shall not he
liable to any person affected by the action or inaction, regardless
of whether such person received written notice as provided in this
section and regardless of whether the person was under a legal
disability at the time of the delivery of the notice. The person's
exclusive remedy shall be to obtain an order of the court directing
the trustee to convert an income trust to a total return unitrust,
to reconvert from a total return unitrust to an income trust or to
change the percentage used to calculate the unitrust amount.
(m) The following provisions shall apply to a trust that, by
its governing instrument, requires or permits the distribution, at
least annually, of a unitrust amount equal to a fixed percentage of
not less than three nor more than five percent per year of the fair
market value of the trust's assets, valued at least annually, the
trust to be referred to in this section as an "express total return
unitrust."
(1) The unitrust amount for an express total return unitrust
may be determined by reference to the fair market value of the
trust's assets in one year or more than one year.
(2) Distribution of a fixed percentage unitrust amount is
considered a distribution of all of the income of the express total
return unitrust.
(3) An express total return unitrust may or may not provide a
mechanism for changing the unitrust percentage similar to the
mechanism provided under this section, based upon the factors noted
therein, and may or may not provide for a conversion from a
unitrust to an income trust and/or a reconversion of an income
trust to a unitrust similar to the mechanism under this section.
(4) If an express total return unitrust does not specifically
or by reference to this section deny a power to change the unitrust
percentage or to convert to an income trust, then the trustee shall
have such power.
(5) The distribution of a fixed percentage of not less than
three percent nor more than five percent reasonably apportions the
total return of an express total return unitrust.
(6) The trust instrument may grant discretion to the trustee
to adopt a consistent practice of treating capital gains as part of
the unitrust distribution, to the extent that the unitrust
distribution exceeds the net accounting income, or it may specify
the ordering of such classes of income.
(7) Unless the terms of the trust specifically provide
otherwise, a distribution of the unitrust amount from an express
total return unitrust shall be considered to have been made from
the following sources in order of priority:
(A) From net accounting income determined as if the trust were
not a unitrust;
(B) From ordinary income not allocable to net accounting
income;
(C) After calculating the trust's capital gain net income as
described in Internal Revenue Code 26 U. S. C. §1, et seq.
§1222(9), 26 U. S. C. §1222(9), from net realized short-term
capital gain as described in I. R. C. §1222(5), 26 U. S. C. §
1222(5) and then from net realized long-term capital gain described
in I. R. C. §1222(7), 26 U. S. C. §1222(7); and
(D) From the principal of the trust.
(8) The trust instrument may provide that:
(A) Assets for which a fair market value cannot be readily
ascertained shall be valued using such valuation methods as are
deemed reasonable and appropriate; and
(B) Assets used by a trust beneficiary, such as a residence
property or tangible personal property, may be excluded from the
net fair market value for computing the unitrust amount.