January 26, Harold L. Fletcher, Esquire, TEP. Miami, Florida and Memphis, Tennessee USA. Voice:

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1 A Comparison of Attractive States Trust Laws Accompanying Materials To Comparison of Florida & Delaware State Trust Laws The Society of Trust and Estate Practitioners ( STEP ) Miami, Florida USA Chapter 1 January 26, 2012 By Harold L. Fletcher, Esquire, TEP of Miami, Florida and Memphis, Tennessee USA Voice: harold@haroldfletcher.com Concept of table-based comparison methodology and certain original data concerning what comprises Sought After State Trust Law Features Duncan Associates, Attorneys and Counselors, P.C., used by kind permission. Updates, certain additional categories of what comprises Sought After State Trust Law Features, citations and all information concerning Tennessee law Harold L. Fletcher. Any errors relative to the above information are solely those of this author. All information concerning Florida law graciously provided by Jerome L. Wolf, P.L., ( 2012 Jerome L. Wolf, P.L.), Duane Morris LLP All Rights of Respective Persons and Entities Reserved. This document is not designed or intended to provide financial, investment, tax, legal, accounting or other professional advice as the provision of same always requires consideration of individual circumstances. If any reader required professional advice in any of these areas, they should seek the services of a professional advisor. IRS Circular 230 Disclosure: Any discussion of US tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of: avoiding penalties that may be imposed by the Internal Revenue Service; or promoting, marketing or recommending to another party any transaction or matter addressed herein.

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3 TABLE OF CONTENTS I. Introduction... 1 II. Certain States Demonstrate Trust Law Leadership... 1 III. Most Sought After State Trust Law Features... 2 IV. Florida Trust Law Features Added... 3 V. Comparison of Laws... 4 i

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5 I. Introduction Since the 1990 s a trust law revolution has been underway. This revolution has been driven by a number of changes. Some have been common law based, such as the Restatement (Third) Prudent Investor Rule, but the majority has been statutorily based. Relative to the statutorily based changes, an elite group of states have tuned their trust laws to provide world-class trust law features. II. Certain States Demonstrate Trust Law Leadership In a recent article in Trusts & Estates, the authors, which included John P.C. Duncan, Esq., whose earlier work inspired this presentation, singled out Delaware, New Hampshire, South Dakota and Tennessee as having demonstrated broad-ranging trust leadership in recent years 2 In another work by Mr. Duncan, 3 he sets forth a list of the changes that have been forthcoming during the recent trust law revolution: Trust Laws Ø Prudent Investor Act 1991 New investment rules Delegation authority Statutory support for v Preemptive authority of trust provisions v Legitimate reasons to maintain concentrations Ø Innovations beyond the Prudent Investor Act Dynasty trusts, including dynasty purpose trusts Modern Principal and Income Acts Distributions flexibility Statutory support for: v Asset protection trusts v Amending trust instruments in and out of court v Flexible treatment of conflicts v Directed trustees, trust advisors and protectors Corporate Fiduciary Law Changes Ø Interstate personal trust services legitimated and facilitated (virtually non-existent before the 1990s) Trustees may act wherever family members or their assets are located Dramatic variations in quality and flexibility of trust laws among states can determine if a family strategic plan succeeds or fails Dramatic cross-state trust taxation variations mean vast amounts can be at stake - 1 -

6 III. Ø Delegation to Affiliates; Affiliated Investments Prohibitions gave way to disclosure and consent Invaluable both to institutional and family-based trustees (individuals and private trust companies) Most Sought After State Trust Law Features In that same work, Mr. Duncan comprised a list of most sought after state trust law features. 4 This author has added several items to Mr. Duncan s, the combined list of which is: Ø No trust income taxes Ø Interstate trust offices authorized Ø Better than average statutory support for asset concentrations and allows a settlor to relieve the duty to diversify Ø Broad and express authority to use affiliated advisors and investments, including private investment funds Ø Dynasty trusts and dynasty purpose trusts Ø Trustee decanting authority Ø Provides very strong third-party beneficiary spendthrift trust protection Ø Asset protection trusts Ø Statutory support for settlors choices in trust instrument Ø Express authority to delegate Ø Explicit authority for, and protection of, directed trustees and other excluded fiduciaries Ø Duty of co-fiduciaries (trustees, advisors, protectors) to communicate with one another Ø Requirement of beneficiaries to maintain confidential information regarding trust assets Ø Non-judicial trust amendatory authority and settlement agreements Ø Power to adjust and/or power to convert to unitrust Ø Protection of trustees from liability for trust owned life insurance investment decisions and relative to exercise of policy options Ø Availability to curtail reports to all or certain beneficiaries (to have quiet trusts) In Mr. Duncan s original work he included a table comparing these items on the list above for the states of Delaware, New Hampshire, South Dakota and Nevada. This author has taken the concept of the tabular presentation and: Ø Added information for the state of Tennessee, dropping Nevada from the table, because despite very recent improvements in Nevada s trust laws, in the opinion of this author, its laws are still not in the class of those of the included states. Ø Updated and flushed out the information contained in Mr. Duncan s original table. Ø Added citations to the information provided

7 IV. Florida Trust Law Features Added For a number of reasons, including the state s proximity to Latin America, Florida trust law has significant impact on international wealth planning and structuring. In light of that impact, as well as the interests of the members of the Miami, Florida USA chapter of the Society of Trust and Estate Practitioners (STEP), these materials now include information for the state of Florida 5-3 -

8 V. Comparison of Laws Attractive Trust Laws of Yes/No, if the trust is a nonresident No tax upon income shall be Yes (5% on dividends & inter- None / None trust, except for Del- levied by the state. Section est income of NH resident ben- aware source income, or, eficiary s share of trust) / None whether a resident or nonresident on nonresident beneficiaries. trust, has non-resident beneficiaries. taxable dividends or interest non-resident differs slightly from the trust if it was not: (i) created nnessee by the will of a decedent who at law. 8 the time of death was domiciled in DE; (ii) created by, or consisting of property of, a person domiciled in DE; or (iii) during more than ½ of any year more than ½ of the trustees are DE residents or, if an entity, have an office for the conduct of business in DE. However, in the case of (iii), above, in addition to any income distribution deduction ratable to a non-de resident beneficiary, DE allows a deduction from DE taxable income on accumulations ratable to all persons who both: (i) are not domiciled in DE; and (ii) do not maintain an abode in DE at which they reside an aggregate 183 days or more during a taxable year. 7 Trust Income Tax Resident/ Non-Resident Permits Interstate Trust Offices Permits Interstate Fiduciary Activities Duty to Diversify Trust Investments/ Support for Concentrated Investment Positions None waive trustee s duty to diversify by provisions of instrument). any fiduciary acting under a governing instrument shall not be liable to anyone whose interests arise from that instrument for breach of fiduciary duty for the fiduciary s good faith reliance on the express provisions of such instrument. 17 administer the trust as a prudent person relieves a trustee who acts in reasonable reliance on the terms of a trust as expressed in the trust instrument. relieves a trustee from liability if the beneficiaries consent to the trustee's conduct several important non-uniform provisions that give settlors flexibility relative to trustee s duty to diversify and give support for the holding of concentrated investment positions (generally, a trustee is not liable for determining in good faith whether to diversify or not to diversify). Specifically, NH has modified SD s law was similar to a re- ction describing in what form of assets a trustee may invest is titled states: may be made, regardless of any lack of diversification. support relative to the Yes (6% on dividends & inter- eficiary s share of trust) / None on nonresident beneficiaries 9 several important non-uniform provisions that give settlors flexibility relative to trustee s duty to diversify and give support for the holding of concentrated investment positions. reliance on provisions of trust is sufficient to exculpate trustee from liability (i.e., the uniform reasonable reliance

9 Duty to Diversify Trust Investments/ Support for Concentrated Investment Positions Attractive Trust Laws of uniform terms of a governing instrument (among other things) may expand, the extent the trustee acted in restrict, eliminate, or reasonable reliance on the pro- otherwise vary the rights and visions of the trust or court interests of beneficiaries, including, order or determined not to di- but not limited to, the versify the investments of a circumstances, if any, in which trust in good faith in reliance on the fiduciary must diversify the express terms of the trust or investments, and a fiduciary s a court order or pursuant to powers, duties, standard of care, -B:9-903 rights of indemnification and B:9- liability to persons whose interests ament. 18 arise from that instrution unless the trustee reasona- bly determines that, because of special circumstances, the purposes of the trust are better served without diversifying. - nguage, but the other special, non-uniform provisions of NH xpress power to determine in good faith whether to diversify or not to diversify) lack of a duty to diversify and adding clear support for concentrated investment positions was added with several very important amendments adopted the amendments even more expressly relieve a trustee from the duty to diversify and support a trustee s holding of concentrated positions under specified circumstances. nvestor rule was amended to state the following: udent investor rule may be expanded, restricted, eliminated, or otherwise altered by the terms of the trust instrument or court order. No trustee is liable to a beneficiary to the extent that the trustee acted in reliance on the provisions of the trust reasonable business judgment standard from the rule. diversification of investments was amended to specifically permit a trustee not to diversify if the instrument or a court order provides for same: dless of concentration or lack of diversification, the trustee need not diversify if the trust instrument allows or directs retention of assets forming part of the trust corpus. section was further amended in trustee from liability when acting in reliance (again, no reasonableness standard) on a pro- particular investment or type of investment: u- fiduciary to invest in a specific portfolio strategy, the word shall, as in, mstances that a trustee shall consider throughout uniform may. mstances that a trustee may consider the enumerated list of circumstances somewhat more akin to guidance in determining the what is relevant for investing and managing trust assets. i- that the permissible invest (the legal list investments) remain permissible investments after adoption of on-uniform subsection (g) is not the exclusive standard of care relative to portfolio strate ) are in addition to the powers existing under other provisions of this code authorizing in- seems to state that any pre- tegy that was deemed appropri- with the freedom to deviate from the diversification re (b) and the life insurance investment liability exculpa (c) -uniform)

10 Attractive Trust Laws of investment, type of investment, or investment concentration, no trustee is liable to a beneficiary to the extent that the trustee acted in reliance on the provisions of the trust instrument or court order. for review of the activities of closely-held entities was removed if an instrument or court d- not limit its exculpation merely to review of assets upon acceptance of trusteeship, although that is the title of the code section in which the amendment is placed. Query: Does the amendment just apply in such cases or to after- -held entities? closelyheld entities is broad to include any entity in which the following persons in aggregate grandparents or their descendants, or any trust created by any of the above. ecific provisions, SD has long had a provision that holds a trustee harmless for a trustee s reasonable and good faith reliance on any express provisions of an instrument expanding, restricting, altering or eliminating any provisions of the statutorily provided investment and management powers of fiduciaries. Duty to Diversify Trust Investments/ Support for Concentrated Investment Positions giving further support for non-diversification / bsection allows retention of assets with no liability that initially come into a trust or are added to it or that are acquired pursuant to proper authority, so long as the fiduciary in good faith and reasonable prudence considers it in the best interests of the trust & its beneficiaries or in the furtherance of the goals of the settlor as determined by the terms of the in- ecifically includes in the definition of these assets, closely held or control stock. ons state that absent express provisions in instrument to contrary, insured, interest bearing deposits in any financial institution, including that of the fiduciary investment and reasonable amounts of non-interest bearing cash can be held for reasonable times for operations, pending distributions and investments. 31 that pre- utinely incorporated by reference grant authority to retain without liability, investments that initially come into the hands of the trustee so long as in the judgment of the fiduciary it is not clearly in the best interests of the trust and its beneficiaries are not productive of income or are not investments the trustee would otherwise be authorized to make.

11 Express Authority to Use Affiliates/Related Parties and/or Affiliated Delegates Attractive Trust Laws of 33 of this Excellent although not as Perhaps the current gold Excellent, a combination of analysis ranked DE as only specific as SD law as to what standard. provisions similar to DE & NH very good. However, upon comprises an affiliated investment law. or an affiliated b- reading the current DE, NH & SD codes, this author can find transaction, ing the investments in which a -- Quite very little difference among trustee may invest, it expressly fter its latest tatute authorizes the use of affiliated amendments, SD appears to be does not specifically provide for investments. 37 best in this area. private investment partnerships, etc., operated by affiliates of the entire section that describes in difference in DE law vs. SD detail what constitutes affiliated investments. 38 n- law is that under DE law, the sense, the NH law is more like code section describing affiliated investments explicitly vestments, including private the DE law. 36 clude all possible types of in- states they can be dealt with by placements and hedge funds a fiduciary: Subject to the that are offered by direct or investment standards stated in indirect affiliates of the trustee. investor rule) 34 of this title, 35 trustee to effect securities transactions, carry out brokerage, while there is no such explicit though one could easily argue mance fees through, and obtain earn management and perfor- the DE language is merely for expense reimbursements from, emphasis because all fiduciary investments are subject to their disclosure, not less often than respective state s prudent investor rule. annually, of the above fees to a SD definition, because SD is fiduciary and affiliates specifically allowed 39 investment in affiliate investment company and investment trust provided by law. 40 of this presentation, this is one compared. However, the author believes that a settlor, using talented legal counsel, can compensate for any statutory shortfalls through competent why the author believes this, please see the comments made ssee to nvestment Positions. rride the default provisions of greater extent than allowed by competent attorney could recti- relative to the area of Express i- language that overrides the nion of this author, this is an area

12 Express Authority to Use Affiliates/Related Parties and/or Affiliated Delegates Express Authority to Invest in Affiliates/ Authority to Invest in Private Investment Funds Attractive Trust Laws of particularly fallen behind SD, and to a lesser extent NH. Dynasty Trusts Authorized See comments above about the original author ranking DE as only very good,. 41 and this author s thoughts of its position relative to SD (particularly) and NH DE specifically provides for investment in affiliate private investments. Yes rsonalty. 43 interests in real estate. However, DE provides that a new 110- year period begins each time a limited power of appointment relative to the real estate is exercised. 44 can always convert realty to personalty by putting into an entity and putting the entity into trust. d- ess excellent in this area. While both states offer excellent law in this category, in the opinion of this author, SD has an edge in this category. Yes 45 creating the perpetual interest statute, which reads: Perpetuities. against perpetuities shall not apply to any disposition of property or interest therein, created after the effective date of this section, if: disposition or creating the interest contains a provision which expressly exempts the instrument from the application of the rule against perpetuities; and rson to whom the power is properly granted or delegated, has the power under the governing instrument, applicable statute, or common law, to sell, mortgage, or lease property for any period of time beyond the interest created under the governing instrument to vest in order to be valid under the rule against perpetuities. Perhaps the current gold standard. See comments under the provision above. Yes force in SD. 46 certain restraints on the absolute power of alienation: - alienation may not be suspended by any limitation or condition whatever for a longer period than during the continuance of the lives of persons in being plus a period of thirty years at the creation of the limitation or condition, except in the single case mentioned in relating to contingent fee remainder on a prior fee remainder Every future interest is void which suspends the absolute power of alienation for a longer period than is prescribed ation is suspended when there are no persons in being by whom an absolute interest in possession can be conveyed a term of years cannot be suspended for a longer period than the absolute power of alienation can be suspended in respect to a fee. 49 See comments under the category above ory authority to invest in affiliates, and to invest in private investment funds. Yes, limited to 360 years.

13 Attractive Trust Laws of Dynasty Trusts Authorized o apply to a trust or a trustee of a trust - - power to alienate the subject of a trust is a suspension of the power of alienation. However, there is no suspension of the power of alienation by a trust or trust if the trustee has power to sell, either expressed or implied, or if there is an unlimited power to terminate in one or more persons in being is created by exercise of a power of appointment, the permissible period is computed from the time the power is exercised if the power is a general power including a testamentary general power or from the time the power is created if the power is not a general power period in which any instrument or any provision thereof created by a trust or other legal relationship is not to be rendered invalid by the provisions of this chapter measured by actual, rather than possible, events, any of the assets which have not by the terms of the instrument become distributable or vested shall then be distributed as the court having jurisdiction directs, giving effect to the general intent of the creator of the trust or other instrument. - None of these limitations regarding restraints on alienation apply to: trust, for charitable purposes; corporations; corporation, society or associa-

14 Attractive Trust Laws of Dynasty Trusts Authorized tion; or (4) Employees trusts created as part of a pension, retirement, insurance, savings, stock bonus, profit sharing or similar plan established by an employer for the benefit of employees eligible to participate. 53 Purpose Trust Authorized / Can they be Perpetual? Yes / Yes, limited in the case of trusts for animals on death of animal Non charitable trust without an ascertainable beneficiary may not be years. Trustee Decanting Power Yes Broad if trustee has absolute power to invade principal that is not limited to specific or ascertainable purposes, such as health, education, maintenance and support. Very Strong 3d-party Beneficiary Spendthrift Trust Protection On its statutory face as strong as SD, however there are case law exceptions. creditor of a spendthrift trust only such rights to trust property as the terms of the instrument establishing the trust give the creditor. nguage of the statute, the DE courts have recognized an exception from the protection of the spendthrift provisions for obligations to support a spouse. theory that the wife was not a and was not bound by the spendthrift provisions of the trust from reaching those assets. spendthrift trust income in the hands of the bank as trustee was - a creditor or assignee of the beneficiary may not reach the interest on a distribution by the trustee before receipt of the interest or distribution by the beneficiary Exceptions to spendthrift provision. a beneficiary's child, spouse or former spouse who has a the beneficiary for support or maintenance. a judgment creditor who has provided service for the protection of a beneficiary's intent in the trust. However, for purposes of the foregoing, only as a last resort upon an initial showing that traditional methods of enforcing the claim are insufficient Yes / Yes, limited in the case of trusts for pets. 55 Yes Broad 59 Slightly stronger protection than uniform spouses and former spouses remain exception creditors. However, in the case of spouses and former spouses, they can only reach assets subject to a spendthrift clause if such person has a judgment or court order against the beneficiary for alimony but only for and to the extent that such judgment or court order expressly specifies the alimony amount attributable to the most basic food, shelter and medical needs of the spouse or former spouse. 65 NH also explicitly states that the Uni- (or similar act) applies against a spendthrift trust 66 Yes / Yes, limited in the case of trusts for pets. 56 Yes Broad, but trustee must decide that decanting is necessary or desirable. 60 Exceedingly strong. party beneficiaries into three categories: (i) mandatory; (ii) support; and (iii) discretionary; based on the language describing the terms of the distri- ations determine the rights a beneficiary has to force a potential distribution. rests, the spendthrift statute states: spendthrift provision, no creditor may reach present or future mandatory distributions from the trust at the trust level. trustee to distribute past due mandatory distributions directly to a creditor. 68 and support interests in a spend- Yes, limited to 90 years, and otherwise limited in the case of pets. 57 Yes and most liberal in the US 61 authors of another state s statute was concerned it might cause issues for less knowledgeable and less experienced attorneys Extremely strong. second only to SD due to substantial modifications to uniform protection against creditors offered by uniform by removing virtually all exception creditors for nondiscretionary trusts that contain a spendthrift provision. 71 only creditor that can reach the assets of a non-discretionary spendthrift trust is the state of stated exception in favor of the reason the author ranks SD higher here, as it s statutes contain no obvious exemptions to spendthrift trust protection.

15 Very Strong 3d-party Beneficiary Spendthrift Trust Protection Attractive Trust Laws of also not an attachment within a claim of the state or the that are exception creditors in United States. the case of spendthrift trusts 63 exception creditors in the case of discretionary trusts. 67 reaching the interest of a beneficiary even when that beneficiary commits a willful tort thrift trust, the code states: [N]o creditor may force a distribution with regard to a mandatory or support interest. No creditor may reach present or future support distributions with regard to a mandatory or support interest. (Note there are no exception creditors listed here). iciary has any outstanding creditor, a trustee of a mandatory or a support interest may directly pay any expense on behalf of such beneficiary. No trustee is liable to any creditor for paying the expenses of a beneficiary of a mandatory or support interest. 69 interests, the code states that they are neither property interests nor enforceable rights, but mere expectancies. No creditor may force a distribution with regard to a discretionary inter- trustee to exercise the trustee s discretion to make a distribution with regard to a discretionary interest 70 - However, the author cannot find any statute that specifically breach a spendthrift trust and isions for collection against by the state for tax liens and liens resulting from child support eficiary s interest in a trust is an no case law on point, and the statutes are not clear, leaving this an area for potential litigation. - should not be a problem for non- will not be liable (unless they. - support (alimony) are a more provides that: where there is an arrearage of child or spousal support in a -D child support case or in which a lien arises pursuant , the department is authorized, without further order of a court, to secure the assets of the obligor to satisfy the current obligations and the arrearage by...forcing the sale able interest in property and by the distribution of the proceeds of the sale. - -D claim under reciprocity. 73 -D cases typically are ssee against a father in cases in which the mother is receiving

16 Attractive Trust Laws of Very Strong 3d-party Beneficiary Spendthrift Trust Protection - - state benefits, including welfare, food stamps, and health benefits, but any parent can -D case regardless of income and whether state benefits were paid. period of child support is 18 upon the income of both parents, but the parent with the higher income pays the other parent based upon the difference in income and the parenting time of each nnessee Section 3)a)1)xi) states that trust income is included as income for the purposes of child support calculations g), which provides that when the presumptive child support order exceeds the amount found by multiplying a net income of ten thousand dollars ($10,000.00) per month by the percentages set out below, then the parent seeking child support in excess of the amount below must prove by a preponderance of the evidence that more child support is reasonably necessary to provide for the needs of the -one usand one hundred dollars ($ -two three thousand two hundred dollars ($ -one percent (41%), [or four thou-

17 Attractive Trust Laws of Very Strong 3d-party Beneficiary Spendthrift Trust Protection Asset Protection Trusts Permitted Yes 75 xception for certain pre-existing apply: suffers death, personal injury or property damage on or before ition by a transferor, which death, personal injury or property damage is at any time determined to have been caused in whole or in part by the tortious act or omission of either such transferor or by another person for whom such transferor is or was vicariously liable but only to the extent of such claim against such transferor or other person for whom such transferor is or was vicariously liable any medical professional who (1)(b)- Self settled spendthrift trusts are not recog- However, a settlor may fund a revocable trust with a life insurance policy and the policy and the death proceeds thereof will be protected from the claims of the settlor's creditors (4) Yes 79 pre- ction does not apply: person who suffers death, personal injury, or property damage on or before the date of a osition by a transferor, which death, personal injury, or property damage is at any time determined to have been caused in whole or in part by the act or omission of either such transferor or by another person for whom such transferor is or was vicariously liable any medical professional who does procedures on minors because in certain cases the statute of limitations period on a minor s tort claim doesn t begin to run until they reach the age of majority. Yes 83 vs. 4 years for others). ption for certain pre-existing tort pply: death, personal injury, or property damage on or before the by a transferor, which death, personal injury, or property damage is at any time determined to have been caused in whole or in part by the act or omission of either such transferor or by another person for whom such transferor is or was vicariously liable any medical professional who does procedures on minors because in certain cases the statute of limitations period on sand one hundred dollars ($ -six percent (46%), [or four thousand six hundred dollars ($ re children = neficiary s interest that is subject to distribution at the discretion of the trustee, regardless of whether the trust does or does not contain a spendthrift provision no creditor can compel a literal reading of this statute leads one to believe there are no exceptions to this protection, not even in favor of the state of 74 Yes, 87 unless the shortest tail period is your most important criteria, arguably the best states. no exception for preexisting tort claimants. alimony or marital property division must pass all of the following hurdles before reaching trust: - reduced to a final nonappealable order of a court; - subject of the claim is past due; and - reasonable attempts to collect the item that is the subject of the claim from other sources of the grantor or that further attempts to do so would be futile. legitime or elective share shall

18 Asset Protection Trusts Permitted Attractive Trust Laws of does procedures on minors a minor s tort claim doesn t because in certain cases the settlor was married before the begin to run until they reach the statute of limitations period on transfer as well as child support age of majority. a minor s tort claim doesn t claims can be levied directly begin to run until they reach the against the trust with no express settlor was married before the age of majority. pre-conditions. 81 transfer as well as child support ecific claims can be levied directly settlor was married before the provisions covering forced against the trust with no express transfer as well as child support heirship and legitime that would pre-conditions. 85 claims can be levied directly be beneficial when dealing with against the trust with no express clients from many civil law a specific provision covering pre-conditions. 77 forced heirship and legitime that would be beneficial when has a specific provision covering dealing with clients from many forced heirship and legitime any claim for forced heirship or civil law i- that would be beneficial when legitime or the elective share of idealing with clients from many the transferor s surviving i- spouse, unless the transferor shay it is ineffective against Paragraph (1) certain spousal claims and those [the paragraph making spouses for the purpose of defeating the and child support claimants surviving spouse s elective any claim for forced heirship or share rights. legitime. 86 section shall not apply to any claim for forced heirship, legitime or elective share. 78 Statutory Support for Settlor s Choices in Trust Instrument, Even When Those Choices Conflict with Default State Law Yes overriding conflicting default state laws, see the comments under the heading Duty to Diversify nvestment Positions. choices over non-investment related aspects of trust admin- heading eficiaries, below , Yes Excellent overriding conflicting default state laws, see the comments under the heading Duty to nvestment Positions. choices over non-investment related aspects of trust administration: uniform of and makes subject to the settlor s wishes the standards of irements for: -Whether or not a noncharitable irrevocable trust can be modified or terminated without court involvement and in certain circumstances, the court determining that the continua- Yes overriding conflicting default state laws, see the comments under the heading Duty to nvestment Positions. choices over non-investment related aspects of trust administration, SD is not generally a uniform law state when it comes to trust law, although law provisions as modified by progressive uniform states l that, SD has statutes that are intent: - have no effect and are statutorily excluded from having any Beneficial with dealing with clients from many civil law Yes Excellent overriding conflicting default state laws, see the comments under the heading Duty to nvestment Positions. choices over non-investment related aspects of trust administration: uniform of and makes subject to the settlor s wishes the standards of s for: - and only re- ccordance with the terms and purposed of the trust and the interests of the beneficiaries; 94 -

19 Statutory Support for Settlor s Choices in Trust Instrument, Even When Those Choices Conflict with Default State Law Attractive Trust Laws of tion of the trust is not necessary to achieve any material purpose of the trust age of the trust and certain other data concerning it; 89 and - e- for various reports and information. 90 Express Authority to Delegate ary standard ( investment and management functions) 97 - Such agents may be hired to assist in the performance of such fiduciary s administrative duties, whether discretionary or ministerial 98 - advice, if the fiduciary reasonably believes in the exercise of its discretion that such an arrangement is in the best interests of all interested persons and will improve the investment performance or the efficiency of the administration of the fiduciary fund seems somewhat confusing as to the liability of a trustee relative to the engagement of agents: such agency relationship nor the Excellent ( investment and management functions ). adds language to cover its explicit provisions for delegation to affiliates. 103 purposes of the trust as declared tly amended, and must follow all the directions of the trustor given at that time, except as modified by the consent of all parties interested, and upon approval by the court. 91 -stee from all liability for breach of trust other than bad faith or as a result of gross negligence. -s- l- of age of the trust and certain other data concerning it and the ious reports and information. Qualified beneficiaries are defined in the notice statute. 93 ( responsibilities of trusteeship ). 104 may seek the prior approval for the delegation from all known beneficiaries of the trust or from the in writing by all known beneficiaries or by the court, the trustee is not liable for the acts of the person to whom the authority is delegated except in the cases of gross misconduct or gross negligence by the delegating trustee in the selection or monitoring of the agent. 105 age of the trust and certain other data concerning it; 95 and - e- for various reports and information. 96 Excellent ( investment and management functions ). 106 adds language to exculpate the trustee for acts performed or omitted pursuant to written directions to cover one of well, presumably, to cover a trustee acting under written directions from the settlor of a revocable trust as provided for

20 Attractive Trust Laws of Express Authority to Delegate performance of such agent shall diminish, increase or otherwise affect the standard by which the performance of the fiduciary is governed. paragraph by: shall be liable for abusing its discretion in hiring such agent, for negligently hiring such agent, or for negligently continuing the agency relationship, but shall not otherwise be liable for the conduct of such agent. 100 trustee relative to directed trusts is found under the DE directed trust section. 101 Trust Protectors & Advisors Statutorily Recognized / Default Powers and Duties Defined Yes / Yes 107 trust adviser includes a trust protector under DE law. 108 Where 1 or more persons are given authority by the terms of a governing instrument to direct, consent to or disapprove a fiduciary s actual or proposed investment decisions, distribution decisions or other decision of the fiduciary, such persons shall be considered to be advisers and fiduciaries when exercising such authority unless the governing instrument otherwise provides. 109 Yes / Yes adds utorily recognizes trust protectors and advisors and describes in detail their powers and duties. - e- -B:- - -Unless a protector or advisor is also a beneficiary, they are explicitly stated to be fiduciar- -B:- - However, subsection (b) of that section also states they are an excluded fiduciary (i.e., owe no duties), to the extent a power is granted or reserved to a fiduciary other than that protector or advisor. - subject to NH state court juris- -B: B:- - that excluded fiduciaries have no duty to review the actions any non-excluded fiduciary, i.e., a trustee, trust advisor or trust protector who holds a power to act Yes / Yes (narrow default definitions) trust protector is a fiduciary. 113 appointed, the excluded fiduciary (the fiduciary other than the protector) is not liable for actions taken on the protector s direction. 114 ctor are as provided in the governing instrument and are to be discretionary and binding on powers, which are couched in the language may include the following. 115 any agreements to the contrary, all trust protectors and advisors automatically consent to the jurisdiction of SD. 116 Yes / Yes 117 non- stee to act in accordance with the directions of a trust protector or advisor without having to consider whether the attempted exercise is manifestly contrary to the terms of the trust or the trustee knows the attempted exercise would constitute a serious breach of a fiduciary duty that the person holding the power owes to the beneficiaries of the trust uniform 808. bsection to expressly state that a trustee following directions ted from liability as provided in it clear that anyone holding a power to direct is a presumptive fiduciary. 118 uniform initial section to pre- author believes makes it clear

21 Attractive Trust Laws of Trust Protectors & Advisors Statutorily Recognized / Default Powers and Duties Defined -uniform trustee to act in accordance with the directions of a trust protector or advisor without having to consider whether the attempted exercise is manifestly contrary to the terms of the trust or the trustee knows the attempted exercise would constitute a serious breach of a fiduciary duty that the person holding the power owes to the beneficiaries of the trust uniform conform to the NH trust advisor provisions found in NH s added that anyone investing assets of a trust pursuant to an agency agreement, or under a delegation, just as much a fiduciary as would be the trustee if the trustee were managing trust assets. 119 this chapter, unless the context (1) means a will, deed, agency agreement, or trust instrument; (2) means any fiduciary relationship created by a governing instrument; and (3) includes all trustees, guardians, and other fiduciaries. s above language subjects all persons to at least the full fiduciary s who are investing assets pursuant to a discretionary agency agreement (e.g., a registered investment adviser s fully discretionary investment management contract), whether or not they are assets of a trust and UP Directed Trustee s or Excluded Fiduciary s Exculpated from Liability for Other Fiduciaries Acts / Omissions sconduct or in some cases, gross negligence) t provides that a fiduciary is to follow the direction of an adviser, and the fiduciary acts in accordance with such a direction, then except in cases of willful misconduct on the part of the fiduciary so directed, the fiduciary shall not be liable for Excellent Excluded fiduciaries are not liable for the action or inaction of a trustee, trust advisor or trust protector, or for any loss that results from the failure of a trustee, trust advisor, or trust protector to take any action proposed by the excluded fiduciary where such of the trustee, trust advisor, or trust protector, provided that an Excellent Excluded fiduciaries are not liable for any of the following: compliance with a direction of the trust advisor, custodial account owner, or authorized designee of a custodial account owner. failure to take any action proposed by an excluded fiduciary Excellent, since 1987 able statutes states: fiduciaries for losses. Whenever an instrument under which a fiduciary is acting reserves to the settlor or vests an advisory or investment committee or in any other person or persons including one (1) or more other fiduciaries, to the exclusion of the fiduciary or to

22 Directed Trustee s or Excluded Fiduciary s Exculpated from Liability for Other Fiduciaries Acts / Omissions Attractive Trust Laws of any loss resulting directly or excluded fiduciary who had a ation indirectly from any such act. duty to propose such action of the trust advisor if that timely sought but failed to obtain excluded fiduciary timely provides that a fiduciary is to the authorization. sought but failed to obtain that make decisions with the consent e- authorization. of an adviser, then except in -B:- - cases of willful misconduct or under the provision immediately any action or inaction, except gross negligence on the part of above. for gross negligence or willful the fiduciary, the fiduciary shall misconduct, when an excluded not be liable for any loss resulting excluded fiduciary can not be directly or indirectly from held liable for things for which to the trust agreement or any any act taken or omitted as a they have no duty (e.g., items other reason, to assume the role result of such adviser s failure -B:- - of trust advisor, trust protector, to provide such consent after investment trust advisor, or distribution trust advisor. by the fiduciary. also relieved from any obligation to direction by an adviser or to perform investment or protector has no duty to monitor or advise the adviser or protector, investigations or to make rec- or to communicate with ommendations or evaluations beneficiaries regarding disagreements with respect to any investments relative to the actions to the extent the trust advisor, of the adviser or protector: custodial account owner, or Whenever a governing instrument authorized designee of a custoto provides that a fiduciary is dial account owner had authori- follow the direction of an sposition, adviser with respect to investment or retention of any decisions, distribution such investment. decisions, or other decisions of t protector is the fiduciary, then, except to the appointed, the excluded fiduciary extent that the governing instrument is not liable for actions tak- provides otherwise, en on the protector s direction. the fiduciary shall have no duty to: adviser; dviser or consult with the adviser; or warn or apprise any beneficiary or third party concerning instances in which the fiduciary would or might have exercised the fiduciary s own discretion in a manner different from the manner directed by the adviser the exclusion of one (1) or more of several fiduciaries, authority to direct the making or retention of any investment, or to perform any other act in the management or administration of the fiduciary account, the excluded fiduciary or fiduciaries shall not be liable, either individually or as a fiduciary, for any loss resulting from the making or retention of any investment or other act pursuant to that direction. -- upon written directions. irrevocable or testamentary trust is not liable to any beneficiary for any act performed or omitted pursuant to written directions from the person holding the power to revoke, terminate or amend the trust. irrevocable or testamentary trust is not liable for any investment action performed or omitted pursuant to written directions from the person to whom the power to direct the investment or management of the account is delegated by the trustor.

23 Attractive Trust Laws of Directed Trustee s or Excluded Fiduciary s Exculpated from Liability for Other Fiduciaries Acts / Omissions -Duty of Co-Fiduciaries (Trustees, Advisors, Protectors) to Communicate with One Another evidence to the contrary, the actions of the fiduciary pertaining to matters within the scope of the adviser s authority (such as confirming that the adviser s directions have been carried out and recording and reporting actions taken at the adviser s direction), shall be presumed to be administrative actions taken by the fiduciary solely to allow the fiduciary to perform those duties assigned to the fiduciary under the governing instrument and such administrative actions shall not be deemed to constitute an undertaking by the fiduciary to monitor the adviser or otherwise participate in actions within the scope of the adviser s authority. e- uciary duty to keep all other fiduciaries reasonably informed about the administration of the trust with respect to any duty or function being performed by that fiduciary to the extent reasonably necessary for the other fiduciaries to perform their duties. However, any fiduciary and receiving any such information shall have no to: monitor the conduct of the fiduciary providing the information; provide advice to or consult with the fiduciary providing the information; or communicate with or warn or apprise any beneficiary or third party concerning instances in which the fiduciary receiving the information would or might have exercised the fiduciary's own discretion in a manner different from the manner in Yes No statutory duty. However, as they are clearly fiduciaries such a duty may possibly be implied No statutory duty. However, as they are clearly fiduciaries such a duty may possibly be implied

24 -Duty of Co-Fiduciaries (Trustees, Advisors, Protectors) to Communicate with One Another Beneficiaries May Be Required to Maintain Confidential Information Regarding Trust Assets Attractive Trust Laws of which such discretion was actually exercised by the fiduciary providing the information. No No Yes, under certain circumstances. written confidentiality restrictions with respect to an asset of a trust, a trustee may who is eligible to receive information pursuant to this section about such asset shall agree in writing to be bound by the confidentiality restrictions that bind the trustee before receiving such information from the trustee. Yes, under certain circumstances. duty of confidentiality with respect to a trust or its assets, a beneficiary who is eligible to receive information pursuant to this section be bound by the duty of confidentiality that binds the trustee before receiving such information from the trustee. 131 Yes, under certain circumstances. written confidentiality restrictions with respect to an asset of a trust, a trustee may who is eligible to receive information pursuant to this section about such asset shall agree in writing to be bound by the confidentiality restrictions that bind the trustee before receiving such information from the trustee. Non-Judicial Settlement Agreements No statutory reference to same. However, DE does allow virtual representation in court proceedings, and unlike under the uniform ation will be allowed to the extent there is no material conflict of interest. uniform no conflict of interest. Yes uniform with several differences: -Unlike the uniform version of this section, the settlor is excluded from the class of interested persons list in the statute of matters that can be resolved by non-judicial settlement includes without limitation uniform is not meant to be exhaustive, explicitly state this is the case. - one item to the list of reasons for settlement / agreement: the termination or modification of a trust. 134 However. under NH it generally (if not always) agreed upon termination or modification. 135 Yes, 136 and virtual representation is available. 137 Yes 138 nclude a non-judicial settlement agreement than does uniform -Unlike the uniform version of this section only the trustee as opposed to the trustee and all interested persons (those persons whose consent would a binding settlement in court). - tute of matters that can be resolved by non-judicial settlement include but are not limited to to the list. obtain virtual representation than under the uniform or in NH or SD, because it does no conflict of interest between those representing and - -