14-10814. Discretionary powers; tax
savings
A. Notwithstanding the breadth of discretion granted to a trustee in the terms of
the trust, including the use of terms such as absolute, sole or uncontrolled, the trustee
shall exercise a discretionary power in good faith as to only beneficiaries of the trust
and creditors of the trust and no other persons, including creditors of the
beneficiaries, except only to the extent that creditors of beneficiaries are expressly
entitled to attachment pursuant to section 14-10504, subsection B and in accordance with
the terms and purposes of the trust and the interests of the beneficiaries.
B. Subject to subsection D of this section, and unless the terms of the trust
expressly indicate that a rule in this subsection does not apply:
1. A person other than a settlor who is a beneficiary and trustee of a trust that
confers on the trustee a power to make discretionary distributions to or for the
trustee's personal benefit may exercise the power only in accordance with an
ascertainable standard relating to the trustee's individual health, education, support or
maintenance within the meaning of section 2041(b)(1)(A) or 2514(c)(1) of the internal
revenue code. This paragraph does not expand the power or duty of a trustee to make
distributions and does not apply to a power held in an individual capacity.
2. A trustee may not exercise a power to make discretionary distributions to
satisfy a legal obligation of support that the trustee personally owes another person.
C. A power whose exercise is limited or prohibited by subsection B of this section
may be exercised by a majority of the remaining trustees whose exercise of the power is
not so limited or prohibited. If the power of all trustees is so limited or prohibited,
the court may appoint a special fiduciary with authority to exercise the power.
D. Subsection B of this section does not apply to:
1. A power held by the settlor's spouse who is the trustee of a trust for which a
marital deduction, as defined in section 2056(b)(5) or 2523(e) of the internal revenue
code, was previously allowed.
2. Any trust during any period that the trust may be revoked or amended by its
settlor.
3. A trust if contributions to the trust qualify for the annual exclusion under
section 2503(c) of the internal revenue code.
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