Senate File 2232 - Introduced SENATE FILE 2232 BY COMMITTEE ON JUDICIARY (SUCCESSOR TO SSB 3036) A BILL FOR An Act relating to the Iowa trust code, including the creation 1 of directed trusts, the transfer of trust assets into 2 other trusts, and requirements related to notices to 3 beneficiaries. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 5523SV (2) 88 ja/jh

S.F. 2232 Section 1. Section 633A.1102, Code 2020, is amended by 1 adding the following new subsections: 2 NEW SUBSECTION . 6A. “Distribution trust director” means any 3 person given authority by an instrument to exercise all or any 4 portion of the powers set forth in section 633A.4810. Except 5 as provided in the trust instrument, the distribution trust 6 director shall have the same fiduciary duty and liability in 7 the exercise or nonexercise of such powers as the trustee would 8 in the absence of such directory powers. 9 NEW SUBSECTION . 6B. “Excluded fiduciary” means any 10 fiduciary excluded from exercising certain powers under an 11 instrument which powers may be exercised by the settlor, trust 12 director, trust protector, or other persons designated in the 13 instrument. 14 NEW SUBSECTION . 10A. “Investment trust director” means any 15 person given authority by an instrument to exercise all or any 16 portion of the powers set forth in section 633A.4809. Except 17 as provided in the trust instrument, the investment trust 18 director shall have the same fiduciary duty and liability in 19 the exercise or nonexercise of such powers as the trustee would 20 in the absence of such directory powers. 21 NEW SUBSECTION . 19A. “Trust director” means either an 22 investment trust director or a distribution trust director. 23 NEW SUBSECTION . 19B. “Trust protector” means any person 24 whose appointment as protector is provided for in the 25 instrument. A trust protector shall not be considered to 26 be acting in a fiduciary capacity except to the extent the 27 governing instrument provides otherwise. However, a trust 28 protector shall be considered to be acting in a fiduciary 29 capacity to the extent that the trust protector exercises the 30 authority or powers of a trust director. 31 Sec. 2. Section 633A.1102, subsection 7, Code 2020, is 32 amended to read as follows: 33 7. “Fiduciary” includes a personal representative, executor, 34 administrator, guardian, conservator, and trustee , trust 35 -1- LSB 5523SV (2) 88 ja/jh 1/ 20

S.F. 2232 director, and any other person designated as a fiduciary by the 1 applicable instrument or this trust code . 2 Sec. 3. Section 633A.4207, subsection 2, Code 2020, is 3 amended to read as follows: 4 2. If In addition to any powers granted to a trustee, 5 the terms of the trust may confer powers upon a person 6 other than the settlor of a revocable trust power to direct 7 certain actions of the trustee, the trustee shall act in 8 accordance with an exercise of the power unless the trustee 9 knows the attempted exercise violates the terms of the trust 10 or the trustee knows that the person holding the power is 11 not competent directors and trust protectors as set forth in 12 sections 633A.4801 through 633A.4810 . A person’s status as 13 a trust director or trust protector under Iowa law shall be 14 determined on the basis of the powers granted and not on the 15 title given to such person in the trust instrument. 16 Sec. 4. Section 633A.4207, subsection 3, Code 2020, is 17 amended by striking the subsection. 18 Sec. 5. Section 633A.4213, Code 2020, is amended by adding 19 the following new subsection: 20 NEW SUBSECTION . 8. Notwithstanding anything in this 21 chapter to the contrary, if a trust instrument, or a trust 22 protector authorized by the trust instrument, designates that a 23 notice, accounting, or report may be delivered to the settlor 24 or to a designated representative on behalf of a beneficiary 25 prior to such beneficiary’s twenty-fifth birthday, then, 26 to the extent there is no conflict of interest between the 27 representative and the beneficiary, all notices, accountings, 28 and reports served on such representative with respect to such 29 period will have the same effect as if such beneficiary had 30 been served directly. 31 Sec. 6. NEW SECTION . 633A.4215 Distributions in further 32 trust. 33 1. As used in this section: 34 a. “First trust” means a trust from which income or 35 -2- LSB 5523SV (2) 88 ja/jh 2/ 20

S.F. 2232 principal is transferred into the second trust. 1 b. “Restricted trustee” means a trustee of the first trust 2 if such trustee is a beneficiary of the first trust or if such 3 trustee has the power to change the trustees of the first trust 4 within the meaning of subsection 5. 5 c. “Second trust” means a trust into which the income or 6 principal of the first trust has been transferred. 7 2. Unless the terms of the governing instrument expressly 8 provide otherwise, if a trustee of the first trust has 9 discretion under the terms of a governing instrument to make a 10 distribution of income or principal to or for the benefit of 11 one or more beneficiaries of the first trust, whether or not 12 restricted by any standard, then the trustee, independently or 13 with court approval, may appoint part or all of the income or 14 principal subject to the trustee’s discretion in favor of a 15 trustee of a second trust under a governing instrument separate 16 from the governing instrument of the first trust. Before 17 exercising the trustee’s discretion to appoint and distribute 18 assets to a second trust, the trustee of the first trust shall 19 determine whether the appointment is necessary or desirable 20 after taking into account the purposes of the first trust, the 21 terms and conditions of the second trust, and the consequences 22 of the distribution. In addition, the following apply to all 23 appointments made under this section: 24 a. The second trust may only have as beneficiaries one or 25 more of the beneficiaries of the first trust to or for whom 26 a discretionary distribution of income or principal may be 27 made from the first trust, or to or for whom a distribution of 28 income or principal may be made in the future from the first 29 trust at a time or upon the happening of an event specified 30 under the first trust. 31 b. No restricted trustee of the first trust may exercise 32 such authority over the first trust to the extent that doing so 33 could have any of the following effects: 34 (1) Benefiting the restricted trustee as a beneficiary 35 -3- LSB 5523SV (2) 88 ja/jh 3/ 20

S.F. 2232 of the first trust, unless the exercise of such authority is 1 limited by an ascertainable standard based on or related to 2 health, education, maintenance, or support. 3 (2) Removing restrictions on discretionary distributions to 4 a beneficiary imposed by the governing instrument under which 5 the first trust was created, except that a provision in the 6 second trust which limits distributions by an ascertainable 7 standard based on or related to the health, education, 8 maintenance, or support of any such beneficiary is permitted, 9 as is a distribution to a trust established pursuant to 42 10 U.S.C. §1396p(d)(4). 11 c. No restricted trustee of the first trust may exercise 12 such authority over the first trust to the extent that doing 13 so would have the effect of increasing the distributions that 14 can be made from the second trust to the restricted trustees of 15 the first trust or to a beneficiary who may change the trustees 16 of the first trust within the meaning of subsection 5 compared 17 to the distributions that can be made to such trustee or 18 beneficiary, as the case may be, under the first trust, unless 19 the exercise of such authority is limited by an ascertainable 20 standard based on or related to health, education, support, 21 or maintenance within the meaning of section 2041(b)(1)(A) or 22 2514(c)(1) of the Internal Revenue Code. 23 d. The provisions of paragraphs “b” and “c” only apply to 24 restrict the authority of a trustee if either a trustee, or 25 a beneficiary who may change the trustee, is a United States 26 citizen or domiciliary under the Internal Revenue Code, or the 27 trust owns property that would be subject to United States 28 estate or gift taxes if owned directly by such a person. 29 e. In the case of any trust contributions which have been 30 treated as gifts qualifying for the exclusion from gift tax 31 described in section 2503(b) of the Internal Revenue Code, by 32 reason of the application of section 2503(c) of the Internal 33 Revenue Code, the governing instrument for the second trust 34 shall provide that the beneficiary’s remainder interest shall 35 -4- LSB 5523SV (2) 88 ja/jh 4/ 20

S.F. 2232 vest no later than the date upon which such interest would have 1 vested under the terms of the governing instrument for the 2 first trust. 3 f. The exercise of such authority may not reduce any income 4 interest of any income beneficiary of any of the following 5 trusts: 6 (1) A trust for which a marital deduction has been taken for 7 federal tax purposes under section 2056 or 2523 of the Internal 8 Revenue Code, or for state tax purposes under any comparable 9 provision of applicable state law. 10 (2) A charitable remainder trust under section 664 of the 11 Internal Revenue Code. 12 (3) A grantor retained annuity or unitrust trust under 13 section 2702 of the Internal Revenue Code. 14 g. The exercise of such authority does not apply to trust 15 property subject to a presently exercisable power of withdrawal 16 held by a trust beneficiary to whom, or for the benefit of 17 whom, the trustee has authority to make distributions, unless 18 after the exercise of such authority, the beneficiary’s power 19 of withdrawal is unchanged with respect to the trust property. 20 h. The exercise of such authority is not prohibited by a 21 provision in the governing instrument that prohibits amendment 22 or revocation of the trust. 23 i. Any appointment made by a trustee shall be considered 24 a distribution by the trustee pursuant to the trustee’s 25 distribution powers and authority. 26 j. Notwithstanding the foregoing provisions of this 27 subsection, the governing instrument of the second trust 28 may grant a power of appointment to one or more of the 29 beneficiaries of the second trust who are beneficiaries of 30 the first trust. The power of appointment may include the 31 power to appoint trust property to the holder of the power of 32 appointment, the holder’s creditors, the holder’s estate, the 33 creditors of the holder’s estate, or any other person, whether 34 or not that person is a trust beneficiary. 35 -5- LSB 5523SV (2) 88 ja/jh 5/ 20

S.F. 2232 k. A permitted exercise of the trustee’s discretion over 1 the entire income and principal of the first trust may be made 2 by modifying the first trust without an actual distribution 3 of property, in which case the second trust is the modified 4 first trust. A modification in further trust pursuant to this 5 paragraph shall require the trustee to notify all beneficiaries 6 of the trust, in writing, at least twenty days prior to the 7 effective date of such exercise, but shall not be subject to 8 the limitations of part 2 of subchapter II of this chapter. 9 l. This section applies to any trust administered under 10 the laws of this state, including a trust whose governing 11 jurisdiction is transferred to this state. 12 3. Any action that may not be taken by a trustee of the 13 first trust by reason of the restrictions in subsection 2, 14 paragraph “b” , may instead be taken by any other trustee of the 15 first trust who is not so restricted, or, if none, by the next 16 available party who can be a successor trustee and who is not 17 so restricted. 18 4. The second trust may be a trust created or administered 19 under the laws of any jurisdiction, within or without the 20 United States. 21 5. For the purposes of subsections 1 and 2, a beneficiary 22 shall be considered to have the power to change the trustees 23 if the beneficiary can, alone or with others, name such 24 beneficiary as a trustee or can remove a trustee and replace 25 that trustee with a new trustee who is the beneficiary or who 26 is related or subordinate, as defined in section 672 of the 27 Internal Revenue Code, to the beneficiary. 28 6. The exercise of the power to distribute the income 29 or principal of the trust under this section shall be by an 30 instrument in writing, signed and acknowledged by the trustee, 31 and filed with the records of the trust. The trustee of the 32 first trust may notify the beneficiaries of the first trust, in 33 writing, prior to the effective date of the trustee’s exercise 34 of the power under this section. A copy of the exercise of this 35 -6- LSB 5523SV (2) 88 ja/jh 6/ 20

S.F. 2232 authority and the second trust agreement shall satisfy this 1 notice provision. For the purposes of this section, the term 2 “beneficiaries” means those persons who would be entitled to 3 notice and a copy of the first trust instrument under section 4 633A.4213. 5 7. The exercise of the power to distribute the income or 6 principal of the trust under this section shall be considered 7 the exercise of a power of appointment that shall not be 8 exercised in favor of the trustee, the trustee’s creditors, the 9 trustee’s estate, or the creditors of the trustee’s estate. 10 8. The power under this section may not be exercised to 11 suspend the power to alienate trust property or extend the 12 first trust beyond the permissible period of any rule against 13 perpetuities applicable to the first trust. 14 Sec. 7. NEW SECTION . 633A.4801 Governing instrument 15 may provide trust director or trust protector with powers and 16 immunities of trustee. 17 Any governing instrument providing for a trust director 18 or trust protector may also provide such trust director 19 or trust protector with some, none, or all of the rights, 20 powers, privileges, benefits, immunities, or authorities 21 available to a trustee under the law of this state or under 22 the governing instrument. Unless the governing instrument 23 provides otherwise, a trust director or trust protector has no 24 greater liability to any person than would a trustee holding 25 or benefiting from the rights, powers, privileges, benefits, 26 immunities, or authority provided or allowed by the governing 27 instrument to such trust director or trust protector. 28 Sec. 8. NEW SECTION . 633A.4802 Liability limits of excluded 29 fiduciary. 30 1. An excluded fiduciary is not liable, either individually 31 or as a fiduciary, for any of the following: 32 a. Any loss that results from compliance with a direction of 33 the trust director, including any loss from the trust director 34 breaching fiduciary responsibilities or acting beyond the trust 35 -7- LSB 5523SV (2) 88 ja/jh 7/ 20

S.F. 2232 director’s scope of authority. 1 b. Any loss that results from a failure to take any 2 action proposed by an excluded fiduciary that requires prior 3 authorization of the trust director if that excluded fiduciary 4 timely sought but failed to obtain that authorization. 5 c. Any loss that results from any action or inaction of 6 the excluded fiduciary, except for gross negligence or willful 7 misconduct, when the excluded fiduciary is required, pursuant 8 to the trust agreement or any other reason, to assume the role 9 of trust director or trust protector. 10 2. An excluded fiduciary is relieved of any obligation 11 to review or evaluate any direction from a trust director or 12 to perform investment or suitability reviews, inquiries, or 13 investigations or to make recommendations or evaluations with 14 respect to any investments to the extent the trust director 15 had authority to direct the acquisition, disposition, or 16 retention of the investment. If the excluded fiduciary offers 17 recommendations or evaluations with respect to any investments 18 to the trust director, trust protector, or any investment 19 advisor selected by the investment trust director, such action 20 may not be deemed to constitute an undertaking by the excluded 21 fiduciary to monitor or otherwise participate in actions within 22 the scope of the trust director’s authority or to constitute 23 any duty to do so. 24 3. An excluded fiduciary is relieved of any duty to 25 communicate with, warn, or apprise any beneficiary or third 26 party concerning instances in which the excluded fiduciary may 27 have exercised the excluded fiduciary’s own discretion in a 28 manner different from the manner directed by the trust director 29 or trust protector. 30 4. Absent contrary provisions in the governing instrument, 31 the actions of the excluded fiduciary pertaining to matters 32 within the scope of authority of the trust director or trust 33 protector shall be deemed to be administrative actions taken by 34 the excluded fiduciary solely to allow the excluded fiduciary 35 -8- LSB 5523SV (2) 88 ja/jh 8/ 20

S.F. 2232 to perform those duties assigned to the excluded fiduciary 1 under the governing instrument, and such administrative 2 actions shall not be deemed to constitute an undertaking by 3 the excluded fiduciary to monitor, participate, or otherwise 4 take on any fiduciary responsibility for actions within the 5 scope of authority of the trust director or trust protector. 6 For purposes of this subsection, “administrative actions” shall 7 include communications with the trust director or others and 8 carrying out, recording, or reporting actions taken at the 9 trust director’s direction. 10 5. In an action against an excluded fiduciary pursuant to 11 the provisions of this section, the burden to prove the matter 12 by clear and convincing evidence is on the person seeking to 13 hold the excluded fiduciary liable. 14 Sec. 9. NEW SECTION . 633A.4803 Death of settlor. 15 An excluded fiduciary may continue to follow the direction 16 of the trust director upon the incapacity or death of the 17 settlor if the instrument so allows. 18 Sec. 10. NEW SECTION . 633A.4804 Excluded fiduciary’s 19 liability for loss if trust protector appointed. 20 If an instrument appoints a trust protector, the excluded 21 fiduciary is not liable for any loss resulting from any action 22 taken upon the trust protector’s direction. 23 Sec. 11. NEW SECTION . 633A.4805 Powers of trust protector. 24 1. The powers of a trust protector are as provided in the 25 governing instrument and may be exercised or not exercised, in 26 the best interests of the beneficiaries as a class, in the sole 27 and absolute discretion of the trust protector and are binding 28 on all other persons. The powers may include the following: 29 a. Modify or amend the trust instrument to achieve favorable 30 tax status or respond to changes in the Internal Revenue Code, 31 state law, or the rulings and regulations thereunder. 32 b. Increase or decrease the interests of any beneficiaries 33 to the trust. 34 c. Modify the terms of any power of appointment granted 35 -9- LSB 5523SV (2) 88 ja/jh 9/ 20

S.F. 2232 by the trust. However, a modification or amendment shall 1 not grant a beneficial interest to any individual or class 2 of individuals not specifically provided for under the trust 3 instrument. 4 d. Remove and appoint a trustee, trust director, or other 5 person designated in the governing trust instrument. 6 e. Terminate the trust. 7 f. Veto or direct trust distributions. 8 g. Change situs of the trust. 9 h. Change the governing law of the trust. 10 i. Appoint a successor trust protector. 11 j. Interpret terms of the trust instrument at the request 12 of the trustee. 13 k. Advise the trustee on matters concerning a beneficiary. 14 l. Amend or modify the trust instrument to take advantage of 15 laws governing restraints on alienation, distribution of trust 16 property, or the administration of the trust. 17 m. Provide direction regarding notification of qualified 18 beneficiaries pursuant to section 633A.4213. 19 n. Add to the trust an individual beneficiary or 20 beneficiaries from a class of individuals identified in the 21 governing instrument. 22 o. Add to the trust a charitable beneficiary or 23 beneficiaries from a class of charities identified in the trust 24 instrument. 25 p. Provide other powers in the governing instrument. 26 2. The powers referenced in subsection 1, paragraphs “e” , 27 “f” , and “l” , may be granted notwithstanding the provisions of 28 sections 633A.2201 through 633A.2208. 29 Sec. 12. NEW SECTION . 633A.4806 Submission to court 30 jurisdiction —— effect on trust director or trust protector. 31 By accepting an appointment to serve as a trust director or 32 trust protector of a trust that is subject to the laws of this 33 state, the trust director or the trust protector submits to the 34 jurisdiction of the courts of Iowa even if investment advisory 35 -10- LSB 5523SV (2) 88 ja/jh 10/ 20

S.F. 2232 agreements or other related agreements provide otherwise. The 1 trust director or trust protector may be made a party to any 2 action or proceeding if a decision or action of the trust 3 director or trust protector affects a trust that is subject to 4 the laws of this state. 5 Sec. 13. NEW SECTION . 633A.4807 Powers of trust protector 6 incorporated by reference in will or trust instrument. 7 Any of the powers enumerated in section 633A.4805, as they 8 exist at the time of the signing of a will by a testator or at 9 the time of the signing of a trust instrument by a settlor, 10 may be, by appropriate reference made thereto, incorporated in 11 whole or in part in such will or trust instrument, by a clearly 12 expressed intention of a testator of a will or settlor of a 13 trust instrument. 14 Sec. 14. NEW SECTION . 633A.4808 Investment trust director 15 or distribution trust director provided for in trust instrument. 16 A trust instrument governed by the laws of this state may 17 provide for a person to act as an investment trust director 18 or a distribution trust director with regard to investment 19 decisions or discretionary distributions, respectively. Unless 20 otherwise provided by the terms of the governing instrument, a 21 person may simultaneously serve as a trust director and a trust 22 protector. 23 Sec. 15. NEW SECTION . 633A.4809 Powers of investment trust 24 director. 25 The powers of an investment trust director shall be provided 26 in the trust instrument and may be exercised or not exercised, 27 in the best interests of the beneficiaries as a class, in the 28 sole and absolute discretion of the investment trust director 29 and are binding on any other person and any other interested 30 party, fiduciary, and excluded fiduciary. Unless the terms 31 of the governing instrument provide otherwise, the investment 32 trust director has the power to do all of the following: 33 1. Direct the trustee with respect to the retention, 34 purchase, sale, exchange, tender, or other transaction 35 -11- LSB 5523SV (2) 88 ja/jh 11/ 20

S.F. 2232 affecting the ownership thereof or rights therein of trust 1 investments. These powers include the pledge or encumbrance 2 of trust property, lending of trust assets, either secured or 3 unsecured, at terms defined by the investment trust director, 4 to any party including beneficiaries of the trust, and the 5 investment and reinvestment of principal and income of the 6 trust. 7 2. Vote proxies for securities held in trust. 8 3. Select one or more investment directors, managers, or 9 counselors, including the trustee, and delegate to them any of 10 the investment trust director’s powers. 11 4. Direct the trustee with respect to any additional powers 12 over investment and management of trust assets provided in the 13 governing instrument. 14 5. Direct the trustee as to the value of nonpublicly traded 15 trust investments. 16 6. Direct the trustee as to any investment or management 17 power referenced in sections 633A.4401 and 633A.4402. 18 Sec. 16. NEW SECTION . 633A.4810 Powers of distribution 19 trust director. 20 The powers of a distribution trust director over any 21 discretionary distributions of income or principal, including 22 distributions pursuant to an ascertainable standard or other 23 criteria and appointments pursuant to section 633A.4215, shall 24 be provided in the trust instrument and may be exercised or 25 not exercised, in the best interests of the beneficiaries as a 26 class, in the sole and absolute discretion of the distribution 27 trust director and are binding on any other person and any 28 other interested party, fiduciary, and excluded fiduciary. 29 Unless the terms of the document provide otherwise, the 30 distribution trust director shall direct the trustee with 31 regard to all discretionary distributions to beneficiaries 32 and may direct appointments pursuant to section 633A.4215. 33 The distribution trust director may also provide direction 34 regarding notification of qualified beneficiaries pursuant to 35 -12- LSB 5523SV (2) 88 ja/jh 12/ 20

S.F. 2232 section 633A.4213. 1 Sec. 17. LEGISLATIVE INTENT. It is the intent of the 2 general assembly that the provisions of this Act enacting 3 section 433A.4215 is declaratory of the common law of this 4 state permitting distributions in further trust and shall be 5 liberally construed to effectuate the intent to maintain such 6 common law authority. Section 433A.4215, as enacted by this 7 Act, shall not be construed to abridge the right of any trustee 8 who has power to distribute income or principal in further 9 trust which arises under the terms of the first trust or any 10 statute or common law applicable to such trust. 11 Sec. 18. CODE EDITOR DIRECTIVE. The Code editor may 12 organize the provisions of this Act enacting sections 633A.4801 13 through 633A.4810 as a new part under subchapter IV in chapter 14 633A. 15 EXPLANATION 16 The inclusion of this explanation does not constitute agreement with 17 the explanation’s substance by the members of the general assembly. 18 This bill relates to the Iowa trust code. The bill codifies 19 the concept of decanting, which generally allows trustees to 20 appoint part or all of the income or principal subject to their 21 discretion in favor of a trustee of a second trust. The second 22 trust may be a trust created or administered under the laws of 23 any jurisdiction, within or without the United States. 24 The bill creates and empowers new positions in the trusts 25 area, including distribution trust directors, excluded 26 fiduciaries, investment trust directors, trust directors, and 27 trust protectors. 28 The bill defines “distribution trust director” as any person 29 given authority by the instrument to exercise all or any 30 portion of the powers set forth in new Code section 633A.4810. 31 The bill defines “excluded fiduciary” as any fiduciary 32 excluded from exercising certain powers under the instrument 33 which powers may be exercised by the settlor, trust director, 34 trust protector, or other persons designated in the instrument. 35 -13- LSB 5523SV (2) 88 ja/jh 13/ 20

S.F. 2232 The bill defines “investment trust director” as any person 1 given authority by the instrument to exercise all or any 2 portion of the powers set forth in new Code section 633A.4809. 3 The bill defines “trust director” as either an investment 4 trust director or a distribution trust director. 5 The bill defines “trust protector” as any person whose 6 appointment as protector is provided for in the instrument. 7 The bill amends the definition of “fiduciary” in Code 8 section 633A.1102 to include “trust director” and any other 9 person designated by the applicable instrument or the trust 10 code. 11 The bill also amends Code section 633A.4207 to instead 12 provide for powers to be granted to a trust director or trust 13 protector. The bill further modifies Code section 633A.4207 14 to indicate a person’s status as a trust director or trust 15 protector is to be determined by the powers granted to such 16 person, not the title in the trust instrument. 17 The bill strikes Code section 633A.4207(3), which stated a 18 person other than a beneficiary who held the power to direct 19 was presumptively a fiduciary and was liable for any loss that 20 resulted from a breach of the person’s fiduciary duty. 21 The bill adds a new subsection to Code section 633A.4213. 22 This new subsection provides that if a trust instrument, or a 23 trust protector authorized by the trust instrument, designates 24 that a notice, accounting, or report may be delivered to the 25 settlor or to a designated representative on behalf of a 26 beneficiary prior to such beneficiary’s 25th birthday, then, 27 to the extent there is no conflict of interest between the 28 representative and the beneficiary, all notices, accountings, 29 and reports served on such representative with respect to such 30 period will have the same effect as if such beneficiary had 31 been served directly. 32 The bill limits a trustee’s decanting ability in several 33 ways. First, decanting is allowed when a trustee has 34 discretion under the terms of a governing instrument to make a 35 -14- LSB 5523SV (2) 88 ja/jh 14/ 20

S.F. 2232 distribution of income or principal to or for the benefit of 1 one or more beneficiaries of a trust. 2 Second, before exercising the trustee’s discretion to 3 appoint and distribute assets to a second trust, the trustee 4 of the first trust must determine whether the appointment is 5 necessary or desirable after taking into account the purposes 6 of the first trust, the terms and conditions of the second 7 trust, and the consequences of the distribution. 8 Third, the bill limits a restricted trustee’s decanting 9 ability. The trustee of the first trust is a “restricted 10 trustee” if such trustee is a beneficiary of the first trust or 11 if a beneficiary of the first trust has a power to change the 12 trustees within the meaning of Code section 633A.4215(5). The 13 bill provides a restricted trustee is prohibited from decanting 14 the trust if doing so could benefit the restricted trustee as 15 a beneficiary of the first trust, unless the exercise of such 16 authority is limited by an ascertainable standard related to 17 health, education, maintenance, or support. The bill also 18 provides a restricted trustee is prohibited from decanting the 19 trust if doing so could remove restrictions on discretionary 20 distributions to a beneficiary imposed by the governing 21 instrument under which the first trust was created, except that 22 a provision in the second trust which limits distributions by 23 an ascertainable standard related to the health, education, 24 maintenance, or support of any such beneficiary is permitted, 25 as is a distribution to a trust established pursuant to 42 26 U.S.C. §1396p(d)(4). 27 Fourth, the second trust may only have as beneficiaries 28 one or more of the beneficiaries of the first trust to or for 29 whom a discretionary distribution of income or principal may 30 be made from the first trust, or to or for whom a distribution 31 of income or principal may be made in the future from the first 32 trust at a time or upon the happening of an event specified 33 under the first trust. 34 Fifth, no restricted trustee of the first trust may exercise 35 -15- LSB 5523SV (2) 88 ja/jh 15/ 20

S.F. 2232 authority over the first trust to the extent that doing so 1 would have the effect of increasing the distributions that can 2 be made from the second trust to the restricted trustees of the 3 first trust or to a beneficiary who may change the trustees of 4 the first trust compared to the distributions that can be made 5 to such trustee or beneficiary, as the case may be, under the 6 first trust, unless the exercise of such authority is limited 7 by an ascertainable standard related to health, education, 8 support, or maintenance within the meaning of section 9 2041(b)(1)(A) or 2514(c)(1) of the Internal Revenue Code. 10 Sixth, in the case of any trust contributions which have 11 been treated as gifts qualifying for the exclusion from gift 12 tax described in section 2503(b) of the Internal Revenue Code, 13 by reason of the application of section 2503(c) of the Internal 14 Revenue Code, the governing instrument for the second trust 15 is to provide that the beneficiary’s remainder interest shall 16 vest no later than the date upon which such interest would have 17 vested under the terms of the governing instrument for the 18 first trust. 19 Seventh, the exercise of such authority may not reduce any 20 income interest of any income beneficiary of a charitable 21 remainder trust under section 664 of the Internal Revenue Code, 22 a grantor retained annuity or unitrust trust under section 2702 23 of the Internal Revenue Code, or a trust for which a marital 24 deduction has been taken for federal tax purposes under section 25 2056 or 2523 of the Internal Revenue Code, or for state tax 26 purposes under any comparable provision of applicable state 27 law. 28 Eighth, the exercise of such authority does not apply 29 to trust property subject to a presently exercisable power 30 of withdrawal held by a trust beneficiary to whom, or for 31 the benefit of whom, the trustee has authority to make 32 distributions, unless after the exercise of such authority, the 33 beneficiary’s power of withdrawal is unchanged with respect to 34 the trust property. 35 -16- LSB 5523SV (2) 88 ja/jh 16/ 20

S.F. 2232 Ninth, the exercise of such authority may not suspend the 1 power to alienate trust property or extend the first trust 2 beyond the permissible period of any rule against perpetuities 3 applicable to the first trust. 4 The bill contains a provision describing the legislative 5 intent of the new decanting section. The new Code section 6 is to be declaratory of the common law of this state, which 7 permits distributions in further trust, and is to be liberally 8 construed to effectuate such intent. In addition, the bill 9 provides that no provision of the new decanting section is to 10 be construed to abridge the right of any trustee who has the 11 power to distribute income or principal. 12 The bill provides that any governing instrument providing 13 for a trust director or trust protector may also provide such 14 trust director or trust protector with some, none, or all 15 of the rights, powers, privileges, benefits, immunities, or 16 authorities available to a trustee under Iowa law or under the 17 governing instrument. The bill also limits the liability of 18 trust directors and trust protectors to no greater than that 19 of a trustee holding or benefiting from the rights, powers, 20 privileges, benefits, immunities, or authority provided or 21 allowed by the governing instrument, unless the governing 22 instrument provides otherwise. 23 The bill places limitations on the liability of an excluded 24 fiduciary. The bill provides an excluded fiduciary is not 25 liable for any loss that results from compliance with a 26 direction of the trust director; any loss that results from a 27 failure to take any action proposed by an excluded fiduciary 28 that requires prior authorization of the trust director if that 29 excluded fiduciary timely sought but failed to obtain that 30 authorization; and any loss that results from any action or 31 inaction of the excluded fiduciary, except for gross negligence 32 or willful misconduct, when the excluded fiduciary is required, 33 pursuant to the trust agreement or any other reason, to assume 34 the role of trust director or trust protector. 35 -17- LSB 5523SV (2) 88 ja/jh 17/ 20

S.F. 2232 In terms of other limitations on the liability of an excluded 1 fiduciary, the bill states an excluded fiduciary is relieved 2 of any obligation to review or evaluate any direction from a 3 trust director or to perform investment or suitability reviews, 4 or to make recommendations or evaluations with respect to any 5 investments to the extent the trust director had authority 6 to direct the acquisition, disposition, or retention of the 7 investment. The bill provides if the excluded fiduciary offers 8 recommendations to the trust director, trust protector, or any 9 investment advisor selected by the investment trust director, 10 with respect to any investments, such action may not be deemed 11 to constitute an undertaking by the excluded fiduciary to 12 monitor or otherwise participate in actions within the scope of 13 the trust director’s authority. 14 The bill also relieves the excluded fiduciary from any duty 15 to communicate with, warn, or apprise any beneficiary or third 16 party concerning instances in which the excluded fiduciary may 17 have exercised the excluded fiduciary’s own discretion in a 18 manner different from the manner directed by the trust director 19 or trust protector. 20 The bill provides, absent contrary provisions in the 21 governing instrument, the actions of the excluded fiduciary 22 pertaining to matters within the scope of authority of 23 the trust director or trust protector shall be deemed to 24 be administrative actions taken by the excluded fiduciary 25 solely to allow the excluded fiduciary to perform those 26 duties assigned to the excluded fiduciary under the governing 27 instrument. Pursuant to the bill, such administrative actions 28 shall not be deemed to constitute an undertaking by the 29 excluded fiduciary to monitor, participate, or otherwise take 30 on any fiduciary responsibility for actions within the scope of 31 authority of the trust director or trust protector. 32 In terms of the relationship between excluded fiduciaries 33 and trust protectors, the bill states that if an instrument 34 appoints a trust protector, the excluded fiduciary is not 35 -18- LSB 5523SV (2) 88 ja/jh 18/ 20