Indiana § 30-4-3-38 - Grantor trust; reimbursement to deemed owner

§ 30-4-3-38. Grantor trust; reimbursement to deemed owner

Sec. 38. (a) This section does not apply to a trust if the application of this section disqualifies the trust for, or reduces the amount of, a marital or charitable deduction available to any person for state or federal:

(1) income;

(2) gift; or

(3) estate;

tax purposes.

(b) As used in this section, "deemed owner" means the settlor or another person who is treated as the owner of the trust for federal income tax purposes under 26 U.S.C. 671 through 26 U.S.C. 679.

(c) As used in this section, "grantor trust" means a trust in which part or all of its income is treated as taxable to a deemed owner for federal tax purposes under 26 U.S.C. 671.

(d) As used in this section, "related or subordinate party" means a nonadverse party who is:

(1) the deemed owner's spouse, if living with the deemed owner; or

(2) any of the following:

(A) The deemed owner's:

(i) father;

(ii) mother;

(iii) issue; or

(iv) brother or sister.

(B) A corporation or an employee of a corporation in which the deemed owner's and the trust's stockholdings are significant from the viewpoint of voting control.

(C) A subordinate employee of a corporation in which the deemed owner is the executive.

(e) This subsection applies only to the part of a trust that is taxable to the deemed owner if only part of the trust is a grantor trust. Unless the terms of the trust expressly provide otherwise:

(1) the trustee of a grantor trust who is not the deemed owner and who is not a related or subordinate party; or

(2) any other trustee of a grantor trust acting at the direction of or with the written consent of a trust director who is not the deemed owner and not a related or subordinate party with respect to the trust's deemed owner;

may reimburse the deemed owner for any amount of the deemed owner's personal federal, state, county, city, local, foreign, or other income tax liability that is attributable to the inclusion of the trust's income, capital gains, deductions, and credits in the calculation of the deemed owner's taxable income.

(f) The trustee may pay the amount under subsection (e) to the deemed owner directly or to an appropriate taxing authority on behalf of the deemed owner.

(g) A person who is authorized to reimburse a trust's deemed owner for income taxes under subsection (e) may not use:

(1) an insurance policy;

(2) the cash value of an insurance policy; or

(3) the proceeds of a loan secured by an interest in an insurance policy;

that the trust holds on the deemed owner's life to reimburse the deemed owner or to pay an appropriate taxing authority on behalf of the deemed owner.

(h) The deemed owner may not be treated as a beneficiary of the trust for purposes of section 2(b) of this chapter or any other Indiana law:

(1) because of the trustee's power to make payments to, or on behalf of, the deemed owner; or

(2) because the trustee decides to exercise power in favor of the deemed owner.

(i) If a person is the deemed owner of only part of a trust for income tax purposes, the reimbursement or payment of income taxes under this section may be made from that part of the trust.

As added by P.L.38-2023, SEC.17.

IC 30-4-3.5Chapter 3.5. Indiana Uniform Prudent Investor Act

30-4-3.5-1Compliance with prudent investor rule 30-4-3.5-2Prudent investor rule 30-4-3.5-3Diversification of investments 30-4-3.5-4Review of trust assets 30-4-3.5-5Trust managed in interest of beneficiaries 30-4-3.5-6Impartial management 30-4-3.5-7Costs 30-4-3.5-8Determination of compliance with prudent investor rule 30-4-3.5-9Delegation of functions by trustee 30-4-3.5-10Authorization of investments or strategies 30-4-3.5-11Applicability of chapter 30-4-3.5-12Purpose of chapter 30-4-3.5-13Short title

IC 30-4-3.5-1Compliance with prudent investor rule Sec. 1. (a) Except as otherwise provided in subsection (b), a trustee who invests and manages trust assets owes a duty to the beneficiaries of the trust to comply with the prudent investor rule set forth in this chapter.

(b) The prudent investor rule, a default rule, may be expanded, restricted, eliminated, or otherwise altered by the provisions of a trust. A trustee is not liable to a beneficiary to the extent that the trustee acted in reasonable reliance on the provision of the trust.

(c) This chapter applies to a trustee or escrow agent, acting as fiduciary, of:

(1) a perpetual care fund established under IC 23-14-48-2;

(2) a prepaid funeral plan or funeral trust established under IC 30-2-9;

(3) a funeral trust established under IC 30-2-10; or

(4) a trust or escrow account created from payments of funeral, burial services, or merchandise in advance of need, as described in IC 30-2-13.

As added by P.L.137-1999, SEC.3. Amended by P.L.61-2008, SEC.14; P.L.33-2019, SEC.14.

IC 30-4-3.5-2Prudent investor rule Sec. 2. (a) A trustee shall invest and manage trust assets as a prudent investor would, by considering the purposes, terms of the trust, distribution requirements, and other circumstances of the trust. In satisfying this standard, the trustee shall exercise reasonable care, skill, and caution.

(b) A trustee's investment and management decisions respecting individual assets must be evaluated not in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust.

(c) Among circumstances that a trustee shall consider in investing and managing trust assets are those of the following that are relevant to the trust or its beneficiaries:

(1) General economic conditions.

(2) The possible effect of inflation or deflation.

(3) The expected tax consequences of investment decisions or strategies.

(4) The role that each investment or course of action plays within the overall trust portfolio, which may include financial assets, interests in closely held enterprises, tangible and intangible personal property, and real property.

(5) The expected total return from income and the appreciation of capital.

(6) Other resources of the beneficiaries.

(7) Needs for liquidity, regularity of income, and preservation or appreciation of capital.

(8) An asset's special relationship or special value, if any, to the purposes of the trust or to one (1) or more of the beneficiaries.

(d) A trustee shall make a reasonable effort to verify facts relevant to the investment and management of trust assets.

(e) A trustee may invest in any kind of property or type of investment consistent with the standards of this chapter.

(f) A trustee who has special skills or expertise, or is named trustee in reliance upon the trustee's representation that the trustee has special skills or expertise, has a duty to use the special skills or expertise.

As added by P.L.137-1999, SEC.3. Amended by P.L.51-2014, SEC.23.

IC 30-4-3.5-3Diversification of investments Sec. 3. A trustee shall diversify the investments of the trust unless the trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying.

As added by P.L.137-1999, SEC.3.

IC 30-4-3.5-4Review of trust assets Sec. 4. Within a reasonable time after accepting a trusteeship or receiving trust assets, a trustee shall review the trust assets and make and implement decisions concerning the retention and disposition of assets in order to bring the trust portfolio into compliance with the purposes, terms of the trust, distribution requirements, and other circumstances of the trust, and with the requirements of this chapter.

As added by P.L.137-1999, SEC.3. Amended by P.L.51-2014, SEC.24.

IC 30-4-3.5-5Trust managed in interest of beneficiaries Sec. 5. A trustee shall invest and manage the trust assets solely in the interest of the beneficiaries.

As added by P.L.137-1999, SEC.3.

IC 30-4-3.5-6Impartial management Sec. 6. If a trust has at least two (2) beneficiaries, the trustee shall act impartially in investing and managing the trust assets, taking into account any differing interests of the beneficiaries.

As added by P.L.137-1999, SEC.3.

IC 30-4-3.5-7Costs Sec. 7. In investing and managing trust assets, a trustee may only incur costs that are appropriate and reasonable in relation to the assets, the purposes of the trust, and the skills of the trustee.

As added by P.L.137-1999, SEC.3.

IC 30-4-3.5-8Determination of compliance with prudent investor rule Sec. 8. Compliance with the prudent investor rule is determined in light of the facts and circumstances existing at the time of a trustee's decision or action and not by hindsight.

As added by P.L.137-1999, SEC.3.

IC 30-4-3.5-9Delegation of functions by trustee Sec. 9. (a) A trustee may delegate investment and management functions that a prudent trustee of comparable skills could properly delegate under the circumstances. The trustee shall exercise reasonable care, skill, and caution in:

(1) selecting an agent;

(2) establishing the scope and terms of the delegation, consistent with the purposes and terms of the trust; and

(3) reviewing the agent's actions periodically in order to monitor the agent's performance and compliance with the terms of the delegation.

(b) In performing a delegated function, an agent owes a duty to the trust to exercise reasonable care.

(c) By accepting the delegation of a trust function from the trustee of a trust that is subject to the law of Indiana, an agent submits to the jurisdiction of the courts of Indiana.

As added by P.L.137-1999, SEC.3.

IC 30-4-3.5-10Authorization of investments or strategies Sec. 10. The following terms or comparable language in the provisions of a trust, unless otherwise limited or modified, authorizes any investment or strategy permitted under this chapter:

(1) "Investments permissible by law for investment of trust funds".

(2) "Legal investments".

(3) "Authorized investments".

(4) "Using the judgment and care under the circumstances then prevailing that persons of prudence, discretion, and intelligence exercise in the management of their own affairs, not in regard to speculation but in regard to the permanent disposition of their funds, considering the probable income as well as the probable safety of their capital".

(5) "Prudent man rule".

(6) "Prudent trustee rule".

(7) "Prudent person rule".

(8) "Prudent investor rule".

As added by P.L.137-1999, SEC.3.

IC 30-4-3.5-11Applicability of chapter Sec. 11. This chapter applies to trusts existing on and created after June 30, 1999. As applied to trusts existing on June 30, 1999, this chapter governs only decisions or actions occurring after June 30, 1999.

As added by P.L.137-1999, SEC.3.

IC 30-4-3.5-12Purpose of chapter Sec. 12. This chapter shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this chapter among the states enacting it.

As added by P.L.137-1999, SEC.3.

IC 30-4-3.5-13Short title Sec. 13. This chapter may be cited as the "Indiana Uniform Prudent Investor Act".

As added by P.L.137-1999, SEC.3.

IC 30-4-4Chapter 4. Rules Governing the Rights of Third Parties

30-4-4-1Presumption of trustee's authority 30-4-4-2Transfers by the trustee to third persons 30-4-4-3Judgment lien against the trustee or beneficiary 30-4-4-4Disclosure of information concerning beneficiaries 30-4-4-5Certification of trust; contents; liability of person relying on certification of trust