1. Current Challenges of Fiduciary Administration in an Era of Multi- Jurisdiction Practice – Changing Trust Situs
Thomas M Forrest
U.S. Trust Company of Delaware
June 5, 2019
U.S. TRUST: CONFIDENTIAL

2. Disclosure
This presentation is designed to introduce you to the products and services available through U.S. Trust, Bank of America Private Wealth Management, is provided for informational purposes only, and is not issued in connection with any proposed offering of securities. This presentation is not used with regard to any specific investment objectives, financial situation or particular needs of any specific recipient and does not contain investment recommendations. Bank of America and its affiliates do not accept any liability for any direct, indirect or consequential damages or losses arising from any use of this presentation or its contents. The information in this presentation was obtained from sources believed to be accurate, but we do not guarantee that it is accurate or complete. The opinions expressed herein are made as of the date of this material and are subject to change without notice. There is no guarantee the views and opinions expressed in this presentation will come to pass. Other affiliates may have opinions that are different from and/or inconsistent with the opinions expressed herein. All charts are based on historical data for the time periods indicated and are intended for illustrative purposes only. IMPORTANT: The material presented is designed to provide general information about ideas and strategies. It is for discussion purposes since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Always consult with your independent attorney, tax advisor, investment manager, and insurance agent for final recommendations and before changing or implementing any financial, tax, or estate planning strategy. U.S. Trust, Bank of America Private Wealth Management operates through Bank of America, N.A. and other subsidiaries of Bank of America Corporation ("BofA Corp."). Bank of America, N.A., Member FDIC. U.S. Trust Company of Delaware is an indirect wholly owned subsidiary of BofA Corp. This presentation may not be reproduced or distributed without prior written consent. ©2017 Bank of America Corporation. All rights reserved. | ARBNSYRV | PPT | 11/2017 2

3. Changing trust situs Choice of law
When creating a new trust, a grantor can and should designate the state law that will govern the validity and construction of the terms of the trust and the state law that will govern the administration of the trust.
What happens when the grantor is deceased and the beneficiaries learn that the state law governing administration of the trust is more favorable in a different state?
The following presentation will provide the reasons for changing the situs of the trust, the benefits that may be achieved and the challenges and roadblocks that may occur during the process. (Presentation will focus on Delaware but many of the issues also apply to other states as well)

4. Reasons for moving trusts
Administration
Administrative flexibility
Avoidance or minimization of accounting requirements and other administrative costs
Modify trust administrative provisions
State income tax savings
Favorable trust laws
Dynasty trust provisions
The availability of a total-return unitrust statute
Privacy
Privacy/confidentiality reasons
Greater assurance that trust assets will be secure from creditor claims
Investment/tax opportunities
Ability to designate an independent investment advisor to manage the trust assets
Allocation of fees and expenses between Income and Principal
Better investment flexibility
Reduce or eliminate state fiduciary income tax
Investment Flexibility
Concentrated positions in trust
Special assets

5. Why do clients choose Delaware?
Flexible trust structures
Directed Trusts
Use of Investment Advisors
Use of Distribution Advisors
Use of Protectors
Trust Decanting
Equitable Adjustments
Favorable trust laws
Dynasty Trusts
Total Return Trusts
Asset Protection Trusts
Silent Trusts
Purpose Trusts
Trust Modification and Decanting
Administrative Flexibility
Advantageous tax laws
No Delaware state income tax on trusts*
No intangibles or excise taxes
Trust-friendly environment
High regard for privacy and confidentiality
Well-respected Court of Chancery
Industry-leading and innovative body of trust law
* Provided beneficiaries are not residents of Delaware

6. A progressive climate for trust assets
1986
DIRECtED trusts
Delaware adopted a modern portfolio approach to investing, authorizing trustees to follow the investment directions of an “investment advisor” named by the trust, without liability for investment results.
1997
Domestic asset protection trusts
The Qualified Dispositions in Trust Act authorizes self-settled asset protection trusts to protect assets from future creditors’ claims while allowing the grantor to retain certain interests in the trust, including receiving discretionary distributions.
Trust decanting
Delaware created a mechanism to modify the terms of an irrevocable trust by creating and transferring existing assets to an entirely new trust — a powerful administrative tool for dealing with legal, tax, investment or beneficiary changes over time Act permits decanting into the same trust, without the need to create a new separate trust.
1995
2000
2000
Total return unitrusts
Delaware enacted the first total return unitrust statute allowing the establishment of or conversion to a unitrust, thus aligning the investment interests of both current beneficiaries and remaindermen.
1986
1995
Dynasty trusts
Delaware repealed the “Rule Against Perpetuities,” enabling grantors to establish trusts that span generations and limit transfer tax exposure.
1997

7. A progressive climate for trust assets
2009
Power to adjust
Delaware law permits a trustee to adjust between principal and income as necessary to administer a trust impartially among the beneficiaries — both current and remainder.
2016
Trust modification
Delaware enhanced its trust modification legislation by expanding the scope of the Non-Judicial Settlement Agreement statute and by enacting a Modification statute allowing for more extensive modification of irrevocable trusts, with grantor participation, without Court involvement.
2017
EXCLUDED TRUSTEE
Delaware law permits co-trustees to direct certain actions of another co-trustee and the excluded trustee is not liable for any loss resulting directly or indirectly from the action taken by the co-trustee.
2013
2013
Nonjudicial settlement agreement
Delaware permits settlors, beneficiaries and fiduciaries an additional way to resolve matters with respect to trust administration without the time and expense of court involvement.
2009
2016
2017

8. 2017/2019 Trust Act Highlights
Decanting Statute enhanced to permit decanting into the same trust, without the need to create a new separate trust.
Modification Statute amended to permit an agent for the Settlor under a power of attorney the power to participate in the modification of a trust. 
New limitations period for actions against a trustee of 120 days following the issuance of an adequate report to the beneficiaries. 
Introduction of the Excluded Co-Trustee Statute allowing the appointment of a co- trustee with designated authority to take specific actions on behalf of the trust. 
2018 Act expanded the virtual representation statute with several new subsections added.    

9. MOVING TRUSTS TO DELAWARE

10. Situs Trust situs means different things in different contexts
State Income Tax
Administration
Validity
Construction
Conflicts of law

11. Trust Modifications
Non-judicial Settlement Agreement & Modification by Consent while Trustor is Living
Decanting
Merger
Court Order
Administrative Power of Amendment

12. Non-Judicial Settlement Agreement (NJSA) §3338 – revised 7/29/16
Advantages:
Relatively quick process
Less cost – no court filing fees
Unlike a merger and decanting, beneficiary action is required
Disadvantages:
Delaware trustee must accept its appointment prior to the NJSA
NJSA now permitted for charitable trusts (2017 Act permits NJSA for charitable trusts)
NJSA can not violate a material purpose of the trust (only applies in cases where trustor is not living)

13. Non-Judicial Settlement Agreement (NJSA) §3338 revised 7/29/16
Section 3338 of Title 12 of the Delaware Code provides a non-exclusive list of six matters that may be resolved by a NJSA:
Interpreting/construing the terms of a trust
Approving report/accounting of a trustee
Directing a trustee to refrain from exercising a power or granting a power to a trustee
Resignation, appointment, or determination of compensation of a trustee
Transferring the principal place of administration of a trust; and
Determining the liability of a trustee for an action relating to the trust.
The revised NJSA statute removes the restriction that an NJSA may only include terms and conditions that could be properly approved by the Court of Chancery, and if the trustor is alive, the NJSA may violate a material purpose of the trust.

14. Modification of Trust by Consent While Trustor is Living (§3342 enacted 7/29/16)
New statute permits any trust to be modified upon written consent or written non- objection of the trustor, beneficiaries, and all living fiduciaries.
Modifications could include:
Converting a trust to a directed trust;
Correcting drafting errors;
Adding or changing beneficial interests;
Granting powers of appointment;
Changing grantor trust treatment;
Including silent trust provisions;
2017 Trust Act permits modifications by an agent under the power of attorney or the terms of the trust’s governing instrument.

15. Decanting (§3528) Advantages: Relatively quick process
Less cost – no court filing fees
Statute specifically permits the creation and decanting into a new trust
Disadvantages:
A decanting involves the Trustee’s exercise of its independent discretion
Delaware trustee must accept its appointment prior to the decanting
Jurisdiction – Any jurisdictional concerns may not be raised until a challenge is brought
Unlike a merger, the decanting statute has numerous requirements (ability to invade principal for example)
Unlike a merger, most states do not have decanting statutes and most trust instruments do not have a decanting clause
2017 Trust Act permits trustees to decant into the same trust, without the need to create a new separate trust

16. Merger §3325(29) Advantages: Relatively quick process
Less cost – no court filing fees
Most states have merger statutes and most trust instruments have a merger clause
Disadvantages:
A trust merger involves the Trustee’s exercise of its independent discretion
Delaware trustee must accept its appointment prior to the merger
Jurisdiction – Any jurisdictional concerns may not be raised until a challenge is brought
No material change in beneficial interest permitted – lack of case law in DE

17. Court Order Advantages:
Relatively Quick Process – Oder typically issued within 2 weeks of filing
Trustee is not exercising discretion
Disadvantages:
Increase costs – Court filing fees
Appointment of Trustee prior to modification – DE trustee serving as full trustee for period before court order

18. Administrative Power of Amendment
Advantages:
Quickest, easiest and lowest risk option for Trustees
Lower Costs
Disadvantages:
Trustees should review the scope of the power and who holds the power
Make sure certain tax results are not jeopardized
Make sure settlor’s intent is fulfilled

19. Risks
Primary risks associated with any trust modification is the risk that some beneficiary may sue the trustee for breach of trust in the future because the trustee caused, or participated in a change to the terms of the trust that ultimately caused some harm to the trust fund or beneficiary. (Example: Trustee decants to change to a directed trust and trust assets drop in value significantly.")
Court Order – least risk option for trustees
Change of beneficial interest
Risk of serving as trustee prior to pending modifications becoming effective

20. Delaware Supreme Court Peierls Decision
Delaware law will govern the law of administration of any trust that allows for the appointment of a successor trustee (without geographic limitation) in Delaware
Ability to appoint a Delaware trustee reflects the settlor’s implied intent that Delaware law will govern the administration of the trust following appointment
Delaware law will not govern administration if (1) the governing law provision expressly states that the law of the original jurisdiction will always govern administration, or (2) where the governing instrument does not provide any ability to appoint a successor trustee or the appointment clause is limited to one located in the original jurisdiction.

21. Delaware Supreme Court Peierls Decision
Once a Delaware trustee is appointed and administers the trust, Delaware law governs administration and a trust can avail itself of all advantages pertaining to Delaware administration including:
Can utilize Delaware’s decanting, merger or NJSA statute;
Total return unitrust conversions and power to adjust;
Delaware’s prudent investor rule, directed trust statutes;
Permissible affiliated investments, trustee compensation;
Trustee releases, virtual representation, etc.

22. Moving trusts
Some Uniform Act States with nonjudical settlement agreement statutes:
Alabama
§§19-3B-101
Arkansas §§
Arizona
Title 28 §§
District of Columbia §§
Florida §§
Kansas
§§ 58a-101
Illinois
§§760
Iowa
Title 15 §633A.6308
Maine
§§18-B, §§111, 411
Massachusetts
Chapter 203E, Article 1, § 111
Michigan
§§7111 MCL §
Minnesota
Chapter 501B. §154
Missouri §§
Nebraska §§
New Hampshire
Chapter 564-B Uniform Trust Code
New Jersey
§§3B:31-11
New Mexico
§§46A-1-111
North Carolina
§§36C-1-101
North Dakota §§
Ohio §§
Oregon
§§ § UTC 111
Pennsylvania
20 Pa. Cons. Stat. §§
South Carolina
Title 62 §§
Tennessee §§
Utah
Title 75, Ch. 07: §§
Virginia §§
Vermont
Title 14A §§101 (§§111 & 411)
Washington
RWC
Wisconsin
With consent of settlor §701.12
Wyoming §§

23. State fiduciary income tax
Delaware does not impose state income taxes on an irrevocable trust’s accumulated earnings and capital gains if there are no beneficiaries living in Delaware. Several other states also do not tax income or capital gains. The income tax treatment varies widely from state to state.
The following factors determine the taxation of trusts for state fiduciary income tax purposes:
If the trust was created by the Will of a testator who lived in the state at death;
If the trust is administered in the state;
If one or more trustees live or do business in the state;
If the trustor of an inter vivos trust lived in the state when he or she placed assets in the trust or when the trust became irrevocable; or
If one or more noncontingent beneficiaries live in the state.

24. Roadblocks Challenges to moving trusts From the client’s perspective:
Lack of appropriate language in document
Uncooperative trustees
Uncooperative beneficiaries
Court intervention
State laws
Cost of moving
Fee Issues
Lack of understanding of Delaware or other state benefits
Application of multiple state laws to trusts
From the trustee’s perspective:
Administrative Situs – Peierls case
Decanting and Merger – Potential trustee liability
Court intervention
State laws
Cost of moving
Application of multiple state laws to trusts
Other – consents, releases etc.