Colorado § 15-16-909 - Court involvement.

§ 15-16-909. Court involvement.

(1) On application of an authorized fiduciary, a person entitled to notice under section 15-16-907 (3), a beneficiary, or with respect to a charitable interest the attorney general or other person that has standing to enforce the charitable interest, the court may:

(a) Provide instructions to the authorized fiduciary regarding whether a proposed exercise of the decanting power is permitted under this part 9 and consistent with the fiduciary duties of the authorized fiduciary;

(b) Appoint a special fiduciary and authorize the special fiduciary to determine whether the decanting power should be exercised under this part 9 and to exercise the decanting power;

(c) Approve an exercise of the decanting power;

(d) Determine that a proposed or attempted exercise of the decanting power is ineffective because:

(I) After applying section 15-16-922, the proposed or attempted exercise does not or did not comply with this part 9; or

(II) The proposed or attempted exercise would be or was an abuse of the fiduciary's discretion or a breach of fiduciary duty;

(e) Determine the extent to which section 15-16-922 applies to a prior exercise of the decanting power;

(f) Provide instructions to the trustee regarding the application of section 15-16-922 to a prior exercise of the decanting power; or

(g) Order other relief to carry out the purposes of this part 9.

(2) On application of an authorized fiduciary, the court may approve:

(a) An increase in the fiduciary's compensation under section 15-16-916; or

(b) A modification under section 15-16-918 of a provision granting a person the right to remove or replace the fiduciary.

Source: L. 2016: Entire part added, (SB 16-085), ch. 228, p. 877, § 1, effective August 10.

COMMENT

Decanting by definition is an exercise of fiduciary discretion and is not an alternative basis for a court modification of the trust.

The decanting power, however, is a very broad discretionary power. Therefore, Section 15-16-909 provides that the authorized fiduciary, any person who would be entitled to notice of the exercise of the decanting power, any beneficiary or the Attorney General or other official who has enforcement authority over a charitable interest in the first trust, may petition the court for certain purposes with respect to a prior decanting or a proposed decanting. The persons who receive notice under Section 15-16-907 and who could petition the court include the settlor, the holder of a presently exercisable power of appointment over the first trust, each person who has a right to remove or replace the authorized fiduciary and each fiduciary of the first and second trusts.

A successor beneficiary, even though such beneficiary is not entitled to notice under Section 15-16-907, could petition the court under Section 15-16-909. Even though the Attorney General is entitled to notice under Section 15-16-907 only if there is a determinable charitable interest, the Attorney General may petition the court under Section 15-16-909 with respect to any charitable interest.

Any such person may request instructions with respect to whether a proposed decanting complies with the act and is consistent with the fiduciary duties of the authorized fiduciary. Section 15-16-909(1)(a). The authorized fiduciary need not have provided notice of a proposed decanting or even be the person proposing the decanting in order for the court to provide instructions. Such an instruction, however, would not create in the authorized fiduciary a duty to decant.

While generally the authorized fiduciary should decide whether or not to exercise the decanting power, and may seek instructions from the court when in doubt as to whether the proposed exercise is permitted and consistent with the authorized fiduciary's fiduciary duties, there may be times when the exercise of the decanting power is appropriate but the authorized fiduciary cannot or should not be the person to exercise the power. Under such circumstances the court may appoint a special fiduciary to determine if the decanting power should be exercised and, if so, to exercise the power. Section 15-16-909(1)(b). The terms of the appointment may limit the special fiduciary's power to determine whether a proposed exercise is appropriate or may grant the special fiduciary broader power to determine the scope of a decanting. The term of appointment may also limit the period of time during which the special fiduciary may act. For example, assume a trust permits discretionary principal distributions to the settlor's descendants subject to an ascertainable standard if a beneficiary is acting as trustee and subject to expanded discretion if a disinterested person is acting as trustee. If a beneficiary is acting as trustee and believes that an exercise of the decanting power under Section 15-16-911 may be appropriate, the trustee could request that the court appoint a disinterested person as special fiduciary to determine whether the decanting power should be exercised and, if so, to exercise the power. As another example, if the authorized fiduciary is a beneficiary of the first trust and it is appropriate to create a special-needs trust for another beneficiary, but the decanting might incidentally increase the authorized fiduciary's interest in the trust, it may be advisable for the authorized fiduciary to request under subsection (1)(b) the appointment of a special fiduciary to decide whether to exercise the decanting power.

The special fiduciary essentially temporarily steps into the office of the trustee or other fiduciary who has the power to make trust distributions (the "distribution fiduciary"). If the special fiduciary, if acting as the distribution fiduciary, would have expanded distributive discretion, the court may authorize the special fiduciary to exercise the decanting power under Section 15-16-911. If the special fiduciary, if acting as the distribution fiduciary, would have limited distributive discretion, the court may authorize the special fiduciary to exercise the decanting power under Section 15-16-912. If the distribution fiduciary has no discretion to distribute principal, then the special fiduciary could not exercise the decanting power under Section 15-16-911 or 15-16-912, but could exercise the decanting power under Section 15-16-913.

For example, assume A is acting as trustee of a trust that is required to distribute income to A and upon A's death distributes to A's descendants. A special fiduciary cannot exercise the decanting power under Section 15-16-911 or Section 15-16-912 because the special fiduciary, if acting as trustee, has no distributive discretion over principal.

Now assume that the trust also provides that if a person who is not a beneficiary is acting as trustee, such trustee may make discretionary distributions of principal to A for A's health care. A special fiduciary who is not a beneficiary could be appointed and granted the authority to exercise the decanting power under Section 15-16-912.

Alternatively, assume that the trust provides that if a person who is not a beneficiary is acting as trustee, such trustee may make discretionary distributions of principal to A for A's best interests. A special fiduciary who is not a beneficiary could be appointed and granted the authority to exercise the decanting power under Section 15-16-911.

Any person described in Section 15-16-909(1) may request that the court approve an exercise of the decanting power. Such approval should be granted if the decanting complies with this act and is not an abuse of the trustee's discretion.

A petition to the court may also request that the court determine whether an attempted decanting is ineffective because it did not comply with the act. The court may also determine whether the remedial provisions of Section 15-16-922 apply to an attempted decanting and how such remedial provisions modify the second-trust instrument. If a trust has been administered after an attempted decanting under the assumed terms of the second-trust instrument, but after applying Section 15-16-922 should have been administered on different terms, the court may also instruct the fiduciary on the corrective action that should be taken.

For example, if an attempted decanting eliminated a noncontingent right to mandatory income distributions, and several years after the attempted decanting the income beneficiary of the first trust petitioned the court to apply Section 15-16-922 to the attempted decanting, the court might declare that the second trust must grant the income beneficiary such beneficiary's mandatory income interest and might order a makeup distribution to the income beneficiary for the period the income was not paid.

In addition, certain changes in a decanting require either approval by certain persons or court approval. Under Section 15-16-916, certain increases in the compensation of the authorized fiduciary require either the consent of all qualified beneficiaries or court approval. Under Section 15-16-918, modification of a power to remove or replace an authorized fiduciary requires the consent of the person holding such power (and, in some cases, consent of the qualified beneficiaries) or court approval.

The court may, but need not, take any of the actions described in Section 15-16-909.