§ 36C-8-814. Discretionary powers; tax savings.
§ 36C‑8‑814. Discretionary powers; tax savings.
(a) Notwithstanding thebreadth of discretion granted to a trustee in the terms of the trust, includingthe use of terms such as "absolute", "sole", or"uncontrolled", a trustee abuses the trustee's discretion inexercising or failing to exercise a discretionary power if the trustee actswith bad faith, acts dishonestly, acts with an improper motive, even though nota dishonest motive, or if the trustee fails to use the trustee's judgment inaccordance with the terms and purposes of the trust and the interests of thebeneficiaries.
(b) Subject tosubsection (d) of this section, and unless the terms of the trust indicate byan express reference to this subsection that a rule in this subsection does notapply:
(1) A person other thana settlor who is a beneficiary and trustee of a trust that confers on thetrustee a power that would, except for this subsection, constitute in whole orin part a general power of appointment may not exercise that power in favor ofthe trustee/beneficiary, the trustee/beneficiary's estate, thetrustee/beneficiary's creditors, or the creditors of the trustee/beneficiary'sestate.
(2) Notwithstandingsubdivision (1) of this subsection, if the trust confers on the trustee thepower to make discretionary distributions to or for the trustee's personalbenefit that would, except for this subsection, constitute in whole or in parta general power of appointment, the trustee may exercise the power inaccordance with an ascertainable standard.
(3) The trustee may notexercise a power to make discretionary distributions to satisfy a legalobligation of support that the trustee personally owes another person.
(4) Any power conferredupon the trustee in the trustee's capacity as a trustee to allocate receiptsand expenses as between income and principal in the trustee's own favor must beexercised in accordance with the provisions of Chapter 37A of the GeneralStatutes, the Uniform Principal and Income Act of 2003.
For purposes of thissubsection, a "general power of appointment" means any power thatwould cause the income to be taxed to the trustee in his individual capacityunder section 678 of the Internal Revenue Code and any power that would be ageneral power of appointment, in whole or in part, under section 2041(b)(1) orsection 2514(c) of the Internal Revenue Code.
(c) A power whoseexercise is limited or prohibited by subsection (b) of this section may beexercised by a majority of the remaining trustees whose exercise of the poweris not so limited or prohibited. If the power of all trustees is so limited orprohibited, the court may appoint a special fiduciary with authority toexercise the power.
(d) Subsection (b) ofthis section does not apply to:
(1) A power held by thesettlor's spouse who is the trustee of a trust for which a marital deduction,as defined in section 2056(b)(5) or section 2523(e) of the Internal RevenueCode, was previously allowed;
(2) Any trust during anyperiod that the trust may be revoked or amended by its settlor; or
(3) A trust, ifcontributions to the trust qualify for the annual exclusion under section2503(c) of the Internal Revenue Code.
(e) If a trust createdunder a will or trust instrument for the benefit of the spouse of the settlorof the trust, other than a trust that provides that upon the termination of theincome interest that the entire remaining trust estate be paid to the estate ofthe spouse, requires that all the income of the trust be paid not lessfrequently than annually to the spouse and a federal estate or gift tax maritaldeduction is claimed with respect to the trust, then, unless the trustinstrument specifically provides otherwise by reference to this section, anyinvestment in or retention of unproductive property as an asset of the trust issubject to the power of the spouse to require either that the asset be madeproductive of income, or that it be converted to assets productive of income,within a reasonable period of time. (1991, c. 736, s. 2; 2003‑232, s. 5a; 2005‑192,s. 2; 2007‑106, s. 36.)