SENATE BILL NO. 366
AN ACT TO AMEND TITLE 12 OF THE DELAWARE CODE RELATING TO TRUSTS.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF DELAWARE :
Section 1. Amend Title 12, Delaware Code, by adding a new section 3545 to read as follows:
“Section 3545. Limitations on Oral Trusts; Execution Requirements for Written Trusts.
Except as otherwise required by this Code, the creation, modification or revocation of a trust whereby a person other than the trustor acquires or is divested of an interest in the trust, the possession or enjoyment of which is contingent upon surviving the trustor, shall be void unless such creation, modification or revocation be (a) in a writing executed by the trustor and witnessed by at least one disinterested person or two credible persons, or (b) in a writing executed by a trustee who is a disinterested person. For purposes of this section, a disinterested person is one who has no beneficial interest in the trust that would be materially increased or decreased as a result of the creation, modification or revocation of the trust.”
Section 2. Amend Title 12, Delaware Code, by adding a new section 3546 to read as follows:
“Section 3546. Limitation on Action Contesting Validity of Revocable Trusts
(a) Upon the death of the trustor of a trust that was revocable at the time of the trustor’s death, a judicial proceeding to contest the validity of the trust may not be initiated later than the first to occur of:
(1) Ninety days after the date the trustee notified the person of the trust’s existence, of the trustee’s name and address, of whether the person is a beneficiary, and of the time allowed for initiating a judicial proceeding to contest the trust;
(2) Two years following the trustor’s death;
(3) If the trust was specifically referred to in the trustor’s last will, the time in which a petition for review of the will could be filed; or
(4) The date the person’s right to contest was precluded by adjudication, consent or limitation.
(b) Upon the death of the trustor of a trust that was revocable at the time of the trustor’s death, the trustee may proceed to distribute the trust property in accordance with the terms of the trust. This distribution may be made without liability unless the trustee has actual knowledge of a pending judicial proceeding to contest the validity of the trust, or is notified by a potential contestant of a possible contest, followed by its initiation within 30 days of such notice.
(c) Until a contest is barred under subsection (a), a beneficiary of what later turns out to have been an invalid trust is liable to return any distribution received.”
Section 3. Amend Title 12, Delaware Code, by adding new Section 3547 to read as follows:
“Section 3547. Representation by Person Having Substantially Identical Interest.
Unless otherwise represented, a minor, incapacitated, or unborn person, or a person whose identity or location is unknown and not reasonably ascertainable, may for all purposes be represented by and bound by another who has a substantially identical interest with respect to the particular question or dispute, but only to the extent that there is no material conflict of interest between the representative and the person represented with respect to the particular question or dispute.”
Section 4. Amend Title 12, Delaware Code, by adding new Section 3404 to read as follows:
“Section 3404. General Powers of Trustee
(a) A trustee, without authorization by the court, may exercise:
(1) powers conferred by the terms of the trust; and
(2) except as limited by the terms of the trust, any other powers conferred by this Chapter.
(b) Except as modified by the terms of a trust, the exercise of a power is subject to the fiduciary duties otherwise prescribed by law.”
Section 5. Amend Title 12, Delaware Code, by adding new Section 3405 to read as follows:
“Section 3405. Specific Powers of Trustee.
Without limiting the authority conferred by Section 3404, a trustee may:
(1) collect trust property and accept or decline additions to the trust property from a trustor or any other person;
(2) acquire or sell property, for cash or on credit, at public or private sale;
(3) exchange, partition, or otherwise change the character of trust property;
(4) deposit trust funds in an account in a regulated financial-services institution, including an institution operated by or affiliated with the trustee;
(5) borrow money, with or without security, and mortgage or pledge trust property for a period within or extending beyond the duration of the trust;
(6) advance money for the protection of the trust, and the trustee has a lien on the trust property as against a beneficiary for reimbursement of those advances, with reasonable interest;
(7) with respect to an interest in a proprietorship, partnership, limited liability company, business trust, corporation or other form of business or enterprise, continue the business or other enterprise and take any action that may be taken by shareholders, members, or property owners, including merging, dissolving or otherwise changing the form of business organization or contributing additional capital;
(8) with respect to stocks or other securities, to exercise the rights of an absolute owner, including the right to:
(A) vote, or give proxies to vote, with or without power of substitution, or enter into or continue a voting trust agreement;
(B) hold a security in the name of a nominee or in other form without disclosure of the trust so that title may pass by delivery;
(C) pay calls, assessments, and other sums chargeable or accruing against the securities, and sell or exercise stock subscription or conversion rights; and
(D) deposit the securities with a securities depository or other regulated financial-services institution;
(9) with respect to an interest in real property, construct, make ordinary or extraordinary repairs, alterations, or improvements in buildings or other structures, demolish improvements, raze existing or erect new party walls or buildings, subdivide or develop land, dedicate land to public use or grant public or private easements, and make or vacate plats and adjust boundaries;
(10) enter into a lease for any purpose as lessor or lessee, including a lease or other arrangement for exploration and removal of natural resources, with or without the option to purchase or renew, for a period within the duration of the trust;
(11) grant an option involving a sale, lease, or other disposition of trust property or take an option for the acquisition of property, excluding an option exercisable beyond the duration of the trust, and exercise an option so acquired;
(12) insure the property of the trust against damage or loss and insure the trustee, the trustee's agents, and beneficiaries against liability arising from the administration of the trust;
(13) abandon or decline to administer property of no value or of insufficient value to justify its collection or continued administration;
(14) with respect to possible liability for environmental conditions:
(A) inspect or investigate property the trustee holds or has been asked to hold, or property owned or operated by an entity in which the trustee holds or has been asked to hold an interest, for the purpose of determining the application of environmental law with respect to the property;
(B) take action to prevent, abate, or otherwise remedy any actual or potential violation of any environmental law affecting property held directly or indirectly by the trustee, whether taken before or after the initiation of a claim or governmental enforcement action;
(C) decline to accept property into trust or to disclaim any power with respect to property that has or may have environmental liability attached;
(D) compromise claims against the trust which may be asserted for an alleged violation of environmental law; and
(E) pay the expense of any inspection, review, abatement, or remedial action to comply with environmental law;
(15) pay or contest any claim, settle a claim by or against the trust, and release, in whole or in part, a claim belonging to the trust:
(16) pay taxes, assessments, compensation of the trustee and of employees and agents of the trust, and other expenses incurred in the administration of the trust;
(17) exercise elections with respect to federal, state, and local taxes;
(18) select a mode of payment under any employee benefit or retirement plan, annuity, or life insurance payable to the trustee, exercise rights thereunder, and take appropriate action to collect the proceeds, including exercise of the right to indemnification against expenses and liabilities;
(19) make loans out of trust property, including loans to a beneficiary on terms and conditions the trustee considers to be fair and reasonable under the circumstances, and, subject to the provisions of Section 3536 of this Title, the trustee has a lien on future distributions for repayment of those loans;
(20) appoint a trustee to act in another State or country as to trust property located in the other jurisdiction, confer upon the appointed trustee all of the powers and duties of the appointing trustee, require that the appointed trustee furnish security, and remove any trustee so appointed;
(21) pay an amount distributable to a beneficiary who is under a legal disability or who the trustee reasonably believes is incapacitated, by paying it directly to the beneficiary or applying it for the beneficiary's benefit, or by:
(A) paying it to the beneficiary's guardian;
(B) paying it to the beneficiary's custodian under the Uniform Transfers to Minors Act, and, for such purpose, to create a custodianship;
(C) if there is no custodian paying it to an adult relative or other person having legal or physical care or custody of the beneficiary, to be expended on the beneficiary's behalf;
(D) depositing it in a regulated financial services institution in an interest bearing account or certificate in the sole name of the beneficiary and by giving notice of the deposit to the beneficiary; or
(E) the trustee managing it as a separate fund on the beneficiary's behalf, subject to the beneficiary's continuing right to withdraw the distribution.
(22) on distribution of trust property or the division or termination of a trust, make distributions in divided or undivided interests, allocate particular assets in proportionate or disproportionate shares, value the trust property for those purposes, and adjust for resulting differences in valuation;
(23) decide, in accordance with rules of law, how and in what proportions any receipts or disbursements are credited, charged, or apportioned as between principal and income, including the ability to create reserves out of income for depreciation, depletion, amortization, or obsolescence;
(24) f all interested beneficiaries also consent, consent to the resolution of a dispute concerning the interpretation of the trust or its administration by mediation, arbitration, or other procedure for alternative dispute resolution;
(25) prosecute or defend an action, claim, or judicial proceeding in any jurisdiction to protect trust property and the trustee in the performance of the trustee's duties;
(26) sign and deliver contracts and other instruments that are useful to achieve or facilitate the exercise of the trustee's powers;
(27) on termination of the trust, exercise the powers appropriate to wind up the administration of the trust and distribute the trust property to the persons entitled to it; and
(28) to sever any trust on a fractional basis into two or more separate and identical trusts for any reason or to segregate by allocation to a separate account or trust a specific amount from, a portion of, or specific assets included in, the trust property of any trust, unless expressly provided to the contrary in the trust instrument. Income earned on a segregated amount, portion, or specific asset after the segregation is effective passes with the amount, portion, or asset segregated. Each separate trust must be held and administered upon the identical terms and conditions of the trust from which it was severed. Subject to the terms of the trust instrument, the trustee may take into consideration differences in federal tax attributes and other pertinent factors in administering the trust property of any separate account or trust, in making applicable tax elections, and in making distributions. A separate trust created by severance must be treated as a separate trust for all purposes from the date on which the severance is effective. The effective date of the severance may be retroactive to a date before the date on which the trustee exercises such power.”
Section 6. Amend Title 12, Delaware Code, by adding new sections 3406 and 3407 to read as follows:
“Section 3406. Resignation of Trustee
(a) A trustee may resign:
(1) If the trust instrument expressly permits the trustee to resign, in accordance with the terms of the trust instrument;
(2) If the trust instrument neither expressly permits nor prohibits the trustee’s resignation, but establishes a procedure for the appointment of a successor trustee who shall be willing and able to serve as such, upon 30 days written notice to the beneficiaries and any co-trustees; or
(3) In all other cases, with the approval of the Court of Chancery.
(b) A beneficiary or co-trustee may waive the notice otherwise required by this section.
(c) In approving a resignation, the Court of Chancery may impose orders and conditions reasonably necessary for the protection of the trust property, including the appointment of a special fiduciary.
(d) Any liability of a resigning trustee or of any sureties on the trustee’s bond, if any, for acts or omissions of a resigning trustee is not discharged or affected by the trustee’s resignation.
Section 3407. Removal of Trustee
A trustee may be removed by the Court of Chancery on its own initiative or on petition of a trustor, co-trustee, or beneficiary if:
(a) the trustee has committed a breach of trust; or
(b) a lack of cooperation among co-trustees substantially impairs the administration of the trust; or
(c) the court, having due regard for the expressed intention of the trustor and the best interests of the beneficiaries, determines that notwithstanding the absence of a breach of trust, there exists (1) a substantial change in circumstances, (2) unfitness, unwillingness or inability of the trustee to administer the trust properly, or (3) hostility between the trustee and beneficiaries that threatens the efficient administration of the trust.”
Section 7. Amend Title 12, Delaware Code, by adding a new subchapter VII to read as follows:
“Subchapter VII. Liability of Trustees and Rights of Persons Dealing with Trustee
Section 3580. Definition. In this Subchapter, "good faith" means honesty in fact and the observance of reasonable standards of fair dealing.
Section 3581. Breach of Trust: Equitable Remedies.
(a) A violation by a trustee of a duty the trustee owes to a beneficiary is a breach of trust.
(b) To remedy a breach of trust that has occurred or may occur, the court may order any equitable remedy, including:
(1) compelling the trustee to perform the trustee's duties;
(2) enjoining the trustee from committing a breach of trust;
(3) compelling the trustee to redress a breach of trust by paying money, restoring property, or other means;
(4) ordering a trustee to account;
(5) appointing a special fiduciary to take possession of the trust property and administer the trust;
(6) suspending or removing the trustee;
(7) reducing or denying compensation to the trustee;
(8) subject to Section 3590, voiding an act of the trustee, imposing a lien or a constructive trust on trust property, or tracing trust property wrongfully disposed of and recover the property or its proceeds; or
(9) granting any other appropriate relief.
Section 3582. Damages Against Trustee for Breach of Trust.
A beneficiary may charge a trustee who commits a breach of trust with:
(a) the amount required to restore the value of the trust property and trust distributions to what they would have been had the breach not occurred; or
(b) the profit that the trustee made by reason of the breach; or
(c) such other relief as may be fashioned by the Court.
Section 3583. Liability of Trustee in Absence of Breach.
(a) A trustee is accountable to a beneficiary for any profit made by the trustee arising from the administration of the trust, even absent a breach of trust.
(b) Absent a breach of trust, a trustee is not liable to a beneficiary for a loss or depreciation in the value of trust property or for the failure to make a profit.
Section 3584. Attorney's Fees and Costs.
In a judicial proceeding involving a trust, the court, as justice and equity may require, may award costs and expenses, including reasonable attorney's fees, to any party, to be paid by another party or from the trust that is the subject of the controversy.
Section 3585. Limitation of Action Against Trustee Following Trustee's Report.
(a) A beneficiary may initiate a proceeding against a trustee for breach of trust until the first to occur of:
(1) two years after the date the beneficiary was sent a report that adequately disclosed the facts constituting a claim; or
(2) the date the proceeding was otherwise precluded by adjudication, release, consent, or limitation.
(b) A report adequately discloses the facts constituting a claim if it provides sufficient information so that the beneficiary knows of the claim or reasonably should have inquired into its existence.
(c) For the purpose of subsection (a), a beneficiary is deemed to have been sent a report if:
(1) in the case of a beneficiary having capacity, it is sent to the beneficiary; or
(2) in the case of a beneficiary who under Section 3547 of this Title may be represented and bound by another person, it is sent to the other person.
(d) This section does not preclude an action to recover for fraud or misrepresentation related to the report.
Section 3586. Reliance on Trust Instrument.
A trustee who acted in good faith reliance on the terms of a written trust instrument is not liable to a beneficiary for a breach of trust to the extent the breach resulted from the reliance.
Section 3587. Events Affecting Administration or Distribution.
Whenever the happening of an event, including marriage, divorce, performance of education requirements, or death, affects the administration or distribution of a trust, a trustee who has exercised reasonable care to ascertain the happening of the event is not liable for a loss resulting from the trustee's lack of knowledge.
Section 3588. Beneficiary's Consent, Release, or Ratification.
A beneficiary may not hold a trustee liable for a breach of trust if the beneficiary, while having capacity, consented to the conduct constituting the breach, released the trustee from liability for the breach, or ratified the transaction constituting the breach, unless:
(a) the consent, release, or ratification of the beneficiary was induced by improper conduct of the trustee; or
(b) at the time of the consent, release, or ratification, the beneficiary did not know of:
(1) the beneficiary's rights; or
(2) material facts the trustee knew or should have known with the exercise of reasonable inquiry.
Section 3589. Limitation on Personal Liability of Trustee.
(a) Except as otherwise provided in the contract, a trustee is not personally liable on a contract properly entered into in the trustee's fiduciary capacity in the course of administration of the trust if the trustee in the contract discloses the fiduciary capacity.
(b) Except as otherwise provided in the contract, a trustee who holds a general partnership interest is not personally liable for contracts entered into by the partnership if the ownership interest and fiduciary capacity is disclosed either in the contract or in a statement filed pursuant to the applicable partnership act.
(c) A trustee is personally liable for torts committed in the course of administering a trust, or for obligations arising from ownership or control of trust property, including liability for violation of environmental law, only if the trustee is personally at fault.
(d) A claim based on a contract entered into by a trustee in the trustee's fiduciary capacity, on an obligation arising from ownership or control of trust property, or on a tort committed in the course of administering a trust, may be asserted in a judicial proceeding against the trustee in the trustee's fiduciary capacity, whether or not the trustee is personally liable on the claim.
Section 3590. Protection of Person Dealing with Trustee.
(a) A person other than a beneficiary who in good faith assists a trustee or who in good faith and for value deals with a trustee without knowledge that the trustee is exceeding or improperly exercising the trustee's powers is protected from liability as if the trustee properly exercised the power.
(b) A person other than a beneficiary who in good faith deals with another person knowing that the other person is a trustee is not required to inquire into the extent of the trustee's powers or the propriety of their exercise.
(c) A person who in good faith delivers assets to a trustee need not ensure their proper application.
(d) A person other than a beneficiary who in good faith assists a former trustee or who for value and in good faith deals with a former trustee without knowledge that the trusteeship has terminated is protected from liability as if the former trustee were still a trustee.
(e) The protection provided by this section to persons assisting or dealing with a trustee is superseded by comparable protective provisions of other laws relating to commercial transactions or to the transfer of securities by fiduciaries.
Section 3591. Certification of Trust.
(a) Instead of providing a person other than a beneficiary with a copy of the trust instrument, a trustee may provide the person with a certification of trust containing statements concerning, but not limited to, the following matters:
(1) the existence of the trust and the date of execution of the trust instrument;
(2) the identity of the trustor or trustors and of the currently acting trustee or trustees of the trust;
(3) the powers of the trustee;
(4) the revocability or irrevocability of the trust and the identity of any person holding a power to revoke the trust;
(5) the authority of co-trustees to sign and whether all or less than all are required to sign in order to exercise powers of the trustee;
(6) the trust's taxpayer identification number; and
(7) the manner in which title to trust property may be taken.
(b) A certification of trust must be in the form of an acknowledged writing and may be signed by any trustee.
(c) A certification of trust must contain a statement that the trust has not been revoked, modified, or amended in any manner that would cause the representations contained in the certification of trust to be incorrect.
(d) A certification of trust need not contain the dispositive terms of a trust.
(e) A recipient of a certification of trust may require the trustee to provide copies of those excerpts from the original trust instrument and later amendments which designate the trustee and confer upon the trustee the power to act in the pending transaction.
(f) A person who acts in reliance upon a certification of trust without knowledge that the representations contained therein are incorrect is not liable to any person for so acting and may assume without inquiry the existence of the facts contained in the certification. Knowledge of the terms of the trust may not be inferred solely from the fact that a copy of all or part of the trust instrument is held by the person relying upon the certification.
(g) A person who in good faith enters into a transaction in reliance upon a certification of trust may enforce the transaction against the trust property as if the representations contained in the certification were correct.
(h) A person making a demand for the trust instrument in addition to a certification of trust or excerpts is liable for damages, including attorney's fees, if the court determines that the person did not act in good faith in requesting the trust instrument.
(i) This section does not limit the right of a person to obtain a copy of the trust instrument in a judicial proceeding concerning the trust.”
Section 8. Amend Title 12, Delaware Code, by deleting Section 3541 in its entirety and substituting a new Section 3541 to read as follows:
“Section 3541. Administration of Charitable Trusts; Cy Pres.
(a) Subject to the provisions of Subsection (b), if a particular charitable purpose becomes unlawful, impracticable, impossible to achieve, or wasteful:
(1) the trust does not fail in whole or in part;
(2) the trust property does not revert to the trustor or the trustor’s successors in interest; and
(3) the Court of Chancery shall modify or terminate the trust and direct that the trust property be applied or distributed, in whole or in part, in a manner consistent with the trustor’s charitable purposes, whether or not such purposes be specific or general.
(b) The power of the Court of Chancery to modify or terminate a charitable trust, as provided in Subsection (a), is in all cases subject to a contrary provision in the terms of the trust instrument, whether such contrary provision directs that the trust property be distributed to a charitable or noncharitable beneficiary.”
Section 9. Amend Title 12, Section 3303 by deleting such section in its entirety and substituting a new Section 3303 to read as follows:
“Section 3303. Effect of Provisions of Instrument
Notwithstanding any other provision of this Code or other law, the terms of a governing instrument may expand, restrict, eliminate, or otherwise vary the rights and interests of beneficiaries and the fiduciary’s powers, duties, standard of care, rights of indemnification, and liability to persons whose interests arise from that instrument; provided, however, that nothing contained in this section shall be construed to permit the exculpation or indemnification of a fiduciary for the fiduciary’s own willful misconduct. The rule that statutes in derogation of the common law are to be strictly construed shall have no application to this section. It is the policy of this section to give maximum effect to the principle of freedom of disposition and to the enforceability of governing instruments.”
Section 10. Section 1 of this Act shall be effective with respect to the creation, modification or revocation of trusts executed on or after January 1, 2001. Sections 2 and 7 shall be effective as of the date of enactment with respect to trusts created after such date and shall be effective two years after the date of enactment with respect to trusts created on or before the date of enactment. Sections 3, 4, 5, 6, 8 and 9 shall be effective as of the date of enactment.
Approved June 30,2000