University of South Dakota School of

From the SelectedWorks of Thomas E. Simmons

September 8, 2019

Purpose Trusts as a Planning Tool for the 21st Century Thomas E. Simmons Brad Myers

Available at: https://works.bepress.com/tom_simmons/71/

Sunday Session III: Purpose Trusts as a Planning Tool for the 21st Century

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Purpose Trusts as a Planning Tool for the 21st Century

Bradley Myers is the Associate Dean for Administration and the Randy H. Lee Professor at the University of North Dakota School of Law. He became a Fellow of the American College of Trust & Estate Counsel in 2017. Governor Hoeven named him one of North Dakota’ Commissioners to the Uniform Law Commission in 2007 and has served on several drafting committees for Uniform Acts in the Trusts & Estates area. Professor Myers joined faculty at the University of North Dakota in 2001 and teaches Federal Income Taxation, Business Entities Taxation Trusts and Estates, . Professor Myers formerly practiced law in the states of Nevada, California and Oregon, with his practice focused primarily in tax, business and estate planning with a special focus on the issues surrounding the development of low-income housing. Professor Myers received BS and MS degrees in Kinesiology from the University of California, Los Angeles. He then spent two years at the University of California, Davis, doing post-graduate research in avian respiratory control. Professor Myers received his J.D. from the University of Oregon. He served on the editorial staff of the Oregon Law Review and was elected to the Order of the Coif. Professor Myers continued his training at New York University, earning an LL.M. in Taxation.

Tom Simmons is a professor at the University of South Dakota School of Law as well as a proud graduate of the same institution where he teaches Trusts & Wills, Estate Planning, Professional Responsibility, Remedies in Law & Equity, and an occasional seminar titled Holocaust Law. He also co-teaches Tribal Wills Clinic I and II. Professor Simmons is a fellow with the American College of Trust and Estate Counsel, the American College of Tax Counsel, and the American Bar Foundation. He serves on the South Dakota Governor’s Task Force on Trust Administration Review and Reform. In that capacity, he drafted South Dakota Virtual Representation and its . He is a former member of the South Dakota Board of Pardons & Paroles. Prior to joining the faculty of the USD law school, Professor Simmons was a partner with the Gunderson, Palmer, Nelson & Ashmore law firm in Rapid City, South Dakota where he practiced in the trusts and estates field for thirteen years. He also clerked for the Honorable Andrew Bogue, a senior federal district court judge. He has taught at every educational level: Head Start, junior high students in Japan, fourth graders in the U.S., paralegal students, and now law students. He also once worked as a “slimer” in a salmon cannery in Alaska.

Copyright © 2019. All rights reserved by Bradley Myers and Thomas E. Simmons.

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TABLE OF CONTENTS

I. INTRODUCTION ...... 4 II. DISCUSSION ...... 5 A. Some Purpose Trust Problems ...... 12 1. Income Tax Problems ...... 13 2. The Rule against Perpetuities ...... 16 3. The Rule against Capriciousness ...... 17 B. A Brief Summary of Existing State Codes...... 18 1. Colorado Code ...... 19 2. Idaho Code ...... 19 3. Montana Code...... 20 4. New Mexico Code ...... 22 5. North Dakota Code ...... 22 6. South Dakota Code ...... 22 7. Texas Code ...... 24 8. Utah Code ...... 25 9. Wyoming Code ...... 25 C. Purpose Trusts Meet Other Uniform ...... 26 1. Uniform Law Commission ...... 26 2. Uniform Code...... 28 3. Uniform Trust Code ...... 28 4. Uniform Directed Trust Act ...... 29 5. Uniform Trust Decanting Act ...... 30 6. Uniform Fiduciary Income and Principal Act ...... 33 D. The States and Uniform Laws: An Analysis ...... 34 1. Colorado Code ...... 34 2. Idaho Code ...... 34 3. Montana Code...... 35 4. New Mexico Code ...... 35 5. North Dakota Code ...... 36 6. South Dakota Code ...... 36 7. Texas Code ...... 37 8. Utah Code ...... 38 9. Wyoming Code ...... 38 III. CONCLUSION ...... 39 IV. APPENDIX: Rocky Mountain Region States’ Statutory Provisions...... 40 A. Colorado Code ...... 40 B. Idaho Code ...... 44 C. Montana Code ...... 45 D. New Mexico Code ...... 46 E. North Dakota Code ...... 47 F. South Dakota Code ...... 48 G. Texas Code ...... 52 H. Utah Code ...... 53 I. Wyoming Code ...... 55 J. Uniform Trust Code §§ 408 and 409...... 56 K. Uniform Trust Code § 2-907 ...... 57

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Purpose Trusts as a Planning Tool for the 21st Century I. INTRODUCTION

Purpose trusts are a rather unique sort of trust.1 The sort of with which we are most familiar is trust which benefits beneficiaries. A woman might create a trust for her husband. A parent might form a trust for his children. Indeed, one critical component of this primary type of trust is that the beneficiaries, if not named or otherwise identified, be at least ascertainable.2 This is more than a mere formality, for without beneficiaries, there is no one who can enforce the trust. If a holds property but is accountable to no one concerning his administration of it, then he doesn’t really hold property in a trustee capacity at all. Thus, a trust which is for the benefit of a ’s “friends” might fail even though it is clear that the settlor intended to create a trust. In Clark v. Campbell, the New Hampshire Supreme Court reasoned that because “friends” had “no accepted statutory or other controlling limitations” and in truth had “no precise sense at all” – that the identity of the beneficiaries was too uncertain.3 Therefore, the trust failed.

One important exception to the requirement that a trust contain ascertainable beneficiaries is charitable trusts. A might be drafted with an aim such as preventing cruelty to animals, working towards the alleviation of hunger, or advancing the education of underprivileged children. Because the purpose identified is “charitable” no ascertainable beneficiaries are required. Or a charitable trust might be drafted which directs the trustee to carry out distributions to charitable organizations. In either case, it might be found that the trust lacks ascertainable beneficiaries, but the trust will not fail for this reason.4 The enforcement problem is solved by vesting the state attorney general with standing to enforce charitable trusts. Charitable trusts might also have ascertainable beneficiaries, benefitting, for example, the ACTEC Foundation, but a charitable trust will not fail for want of an ascertainable .

It may be helpful to think of trusts as falling into these two general categories: (1) trusts for ascertainable beneficiaries and; (2) trusts lacking ascertainable beneficiaries.5 In the second category, we could place charitable trusts which lack ascertainable charitable beneficiaries. Of

1 Parts of this paper were taken from Thomas E. Simmons, A Will for Willa Cather, 83 MISSOURI LAW REV. 641 (2018), Thomas E. Simmons, A Trust for Ted’s Head, 88 MISSISSIPPI LAW J. __ (2019) (forthcoming), Thomas E. Simmons, Purpose Trust Cy Pres, 44 ACTEC LAW J. __ (2019) (forthcoming), and a paper Simmons delivered in 2017 at the South Dakota Bar’s Tax Update XXXIX seminar titled “Income Tax Concerns with Purpose Trusts.” Excellent and comprehensive scholarship on purpose trusts has been undertaken by Professor Ausness. See Richard C. Ausness, Non-Charitable Purpose Trusts: Past, Present, and Future, 41 REAL PROP. TR. & EST. L.J. 321 (2017). 2 See RESTATEMENT (THIRD) OF TRUSTS § 44 (2012). 3 Clark v. Campbell, 133 A. 166, 168 (N.H. 1926). 4 See RESTATEMENT (THIRD) OF TRUSTS § 28 cmt. a (2012). 5 For example: I. Constructive Trusts II. Express Trusts A. Trusts for Ascertainable Beneficiaries 1. Charitable Trusts with Ascertainable Charitable Beneficiaries 2. Noncharitable Trusts with Ascertainable Noncharitable Beneficiaries B. Trusts Without Ascertainable Beneficiaries 1. Charitable Trusts without Ascertainable Charitable Beneficiaries 2. Noncharitable Purpose Trusts

4 – Myers & Simmons course, some charitable trusts also name one or more noncharitable beneficiaries. Split-interest trusts like Charitable Remainder Trusts (CRTs), for example, may operate first for the benefit of noncharitable beneficiaries, then later shift into charitable mode. Others (e.g., CLTs) begin with charitable distributions, then later make distributions to noncharitable beneficiaries. Less commonly, a trust may combine charitable and noncharitable aspects simultaneously such as one which directs the trustee to make distributions among a class of beneficiaries comprised of the settlor’s descendants and his church.

In this unique typology of trusts – those for ascertainable beneficiaries and those for unascertainable beneficiaries – we would place noncharitable purpose trusts (or simply “purpose trusts”) in the second category. Originally, purpose trusts typically failed for want of ascertainable beneficiaries. Purpose trusts also failed because they tended to violate the Rule against Perpetuities. But saving legislation has now largely cured these ills.

Purpose trusts can be traced back to trusts for masses, gravesites, and the like. In America, by far the most familiar noncharitable purpose trust is a “pet trust.”6 There are a host of other potential noncharitable purposes for which a trust could lawfully be created, however. Although noncharitable purpose trusts have been recognized, in fits and starts, for over a hundred years, authority on their treatment for purposes of the federal income tax is sparse.7 The taxation of purpose trusts has been described as “complex and not clearly defined.”8 This problem and others will be considered in the pages which follow. Then a survey of each of the ACTEC Rocky Mountain Region states’ laws on purpose trusts will be undertaken.9

II. DISCUSSION

Purpose trusts – trusts designed to accomplish an aim rather than benefit a beneficiary – have had a rather difficult birth, opposing, as they do at several key points, the law’s disfavor of property use limitations and ’s reliance on beneficiary rights as enforcement mechanisms. Today, purpose trusts are recognized, but most frequently, it seems, in the “pet trust” form. The basic principles of trusts, their origins, and architecture will set the stage for an outline of the recognized varieties of purpose trusts

What is a trust? A trust can be thought of as a personal relation relative to a res; a status of property.10 When the owner of property creates a trust by transferring property to a trustee, she accomplishes a bifurcation of the legal and equitable interests between trustee and beneficiary while imposing fiduciary duties upon the trustee to carry out the terms of the trust.11 While a trustee holds property, legally speaking, the beneficiary too holds a property interest to the same res,

6 See BARRY SELTZER & GARRY W. BEYER, FAT CATS & LUCKY DOGS: HOW TO LEAVE (SOME OF) YOUR ESTATE TO YOUR PET (2010). 7 Gerry W. Beyer and Jonathan P. Wilkerson, Max’s Taxes: A Tax-Based Analysis of Pet Trusts, 43 U. RICH. L. REV. 1219 (2009). 8 Wendy S. Goffe, An Introduction to Lesser-Known but Useful Trusts – Part II, 37 EST. PLAN. 3, 3 (2010). 9 See also infra Parts II(D) (an analysis of state codes and certain uniform laws) and VI (an appendix of those codes). 10 WILLIAM J. BOWE AND DOUGLAS H. PARKER, 5 PAGE ON THE LAW OF WILLS 133 (2005). See also RESTATEMENT OF TRUSTS § 2 (1935) (defining a trust as “a fiduciary relationship with respect to property”). 11 See GERRY W. BEYER, WILLS, TRUSTS, AND ESTATES 323 (6th ed. 2015) (identifying the property interest held by a beneficiary as represented by “equitable title” without control while the trustee holds “legal title”).

5 – Myers & Simmons equitably speaking.12 A trust is also very much like a third party beneficiary , although in a donative context, not a commercial one.13 A trust is in this sense an owner-trustee bargain intended to benefit a beneficiary. Perhaps the trust is more donative than contractual; a trust is typically just a different form of a gift; the alternative to an outright gift.14

Still, contractual aspects cannot be denied. Upon the creation of a trust, the trustee agrees with the settlor to hold property, administer it, and distribute it, as instructed so as to benefit a third party – the beneficiary. One cannot say that a trust is strictly a third party beneficiary contract, since typically one party to the agreement (the settlor) lacks the power to enforce the agreement.15 (Enforcement depends upon the beneficiary.) At the same time, a trust is also an artificial legal person like a corporation or an estate.16 A trust is treated as a person for purposes of taxation.17 A trust, moreover, can sue and be sued; hire and fire advisors.18 Thus, three views compete for explaining a trust: the trust as property bifurcation; the trust as contract; and the trust as entity.

In creating a trust, the necessary elements are (1) intent, (2) a res, and (3) ascertainable beneficiaries.19 A writing is not required, at least in many cases.20 Nor is a trustee absolutely essential to the creation of a trust because a court can always appoint one.21 A trust will not fail for want of a trustee, it is often said.22 A beneficiary who can be ascertained, with or without some difficulty, however, is essential.23 Extrinsic may be admissible in order to properly identify a beneficiary, but if a beneficiary cannot be identified, there is no trust because it becomes impossible to enforce.24 A beneficiary is essential because without a beneficiary, there are no enforceable trustee duties.25 Without the threat of enforcement from ascertainable beneficiaries, a trust collapses.

If the standing of the attorney general solves the recurring charitable trust problem of unascertainable beneficiaries, the doctrine of cy pres allows charitable trusts to benefit from occasional judicial repairs and adjustments. The origins of cy pres are obscure. Romans knew of

12 But see AMY MORRIS HESS, GEORGE GLEASON BOGERT, AND GEORGE TAYLOR BOGERT, THE LAW OF TRUSTS AND § 1 (2017) (noting: “Whether the beneficiary has a property right in the subject matter of the trust (a right in rem), or merely a personal right against the trustee (a right in personam), is a question much debated.”). 13 John H. Langbein, The Contractarian Basis of the Law of Trusts, 105 YALE L.J. 625, 630-31 (1995). 14 See BEYER at 323 (explaining: “In general, a trust scenario arises when a property owner wants to bestow benefits on a worthy individual or charity but does not want to make an unrestricted outright gift.”). 15 See Alaska State Employee’s Assn. v. Alaska Public Employee’s Assn., 825 P.2d 451, 458 n. 8 (Alaska 1991) (noting that after “a settlor has created a trust, the settlor has no rights or powers with regard to the trust unless the provides otherwise.”). 16 See Angelique Devaux DeAnna Beckner and Margaret Ryznar, The Trust as More than a Creature, 41 OHIO N.U. L. REV. 91, 93 (2014) (explaining that a “trust is a legal entity to hold, manage, and transfer property.”). 17 26 U.S.C. § 641 (2017). 18 See RESTATEMENT (THIRD) OF TRUSTS § 105 cmt. a (2012) (providing that “claims against a trust may be asserted by proceeding against the trustee in a representative capacity.”). 19 Cf. UNIF. TRUST CODE § 403(a) (2000) (requiring five elements to a valid trust: intent, settlor capacity, ascertainable beneficiaries, active duties of the trustee, and that “the same person is not the sole trustee and sole beneficiary.”). 20 RESTATEMENT (THIRD) OF TRUSTS § 20 (2003). 21 Id. § 31. 22 Childs v. Waite, 67 A. 311, 312 (Maine 1907). 23 See Levy v. Levy, 33 N.Y. 97, 102 (N.Y. Ct. App. 1865). 24 Weaver v. Kirby, 119 S.E. 564, 566 (S.C. 1923). 25 See Heiss v. Murphy, 40 Wis. 276, 292 (Wis. 1876) (trust for orphans fails for lack of ascertainable beneficiaries).

6 – Myers & Simmons it.26 And by the beginning of the seventeenth century, it was already a mature doctrine.27 Originally, the doctrine seems to have been deployed most frequently to repair a charitable trust from various defects and imperfections at inception.28 Today, it is more often applied to “tune up” a charitable purpose which threatens to stall on account of obsolescence.29

A purpose trust which fails to qualify as having a “charitable” purpose will be deemed a noncharitable purpose trust and therefore ineligible for benefits reserved for charitable trusts. Noncharitable purpose trusts do not typically enjoy exemption from the Rule against Perpetuities or other favorable exemptions reserved for charitable trusts with their public benefits. Professor Madoff notes that noncharitable purpose trusts have been “at best tolerated in limited circumstances, but just as often … disallowed” at least until fairly recently.30 We can subdivide noncharitable purpose trusts into three categories: (1) trusts for masses, gravesites, and memorials; (2) trust for pets; and (3) other types of noncharitable purpose trusts.31 Although noncharitable purpose trusts may be thought of as a relatively recent innovation, their history is nearly as ancient as charitable trusts.

Trusts for Masses and Gravesites

Trusts for the saying of prayers for the after death are often intermixed with charitable inclinations in support of a church. King Henry VIII’s will was executed just days before his death. Following a testamentary prayer, burial instructions for the King’s body, and funeral details that he wished carried out, he made a bequest of lands equal to the yearly net value of 600 pounds to the Chapel of Saint George, subject to a covenant that the “Deane and Cannons and thyr successors for ever shall fynd two priestes to say masses…” Henry VIII’s will also made an outright bequest to needy persons, adding, parenthetically, that “commyn beggars as moch as may be avoided.”32 This outright bequest should be contrasted with the gift to the Dean of the Chapter of St. George’s Chapel at Windsor Castle to endow the support of the “poore knightes.” The former is a testamentary gift to a class of individuals to be selected by the executor (a ). The latter is in the nature of a perpetual trust, with the church (or its Dean) as trustee. The poor knights were in fact supported. They still reside in Windsor Castle.

Occasionally, it can be difficult to distinguish between a purpose trust and burial instructions. The more elaborate the burial instructions, the more likely they are to be challenged by heirs and the more likely they will be voided as capricious. Burial instructions which direct the erection of an

26 HERBERT FELIX JOLOWICZ, ROMAN FOUNDATIONS OF MODERN LAW 138-39 (1957). 27 Jones, supra at 74. 28 Id. at 60-70. 29 Dunbar v. Board of Trustees of George W. Clayton College, 461 P.2d 28, 32 (Colo. 1969). 30 Madoff, supra at 113. 31 Compare Re Endacott [1960] Ch 232 at 246. There, five varieties of purpose trusts were identified: (1) Trusts for the erection or maintenance of monuments or graves; (2) Trusts for the saying of masses, in jurisdictions where such trusts are not regarded as charitable; (3) Trusts for the maintenance of particular animals; (4) Trusts for the benefit of unincorporated associations (though this group is more doubtful); (5) Miscellaneous cases. Id. 32 Id. at 115.

7 – Myers & Simmons enormous stone pyramid might be seen as wasteful.33 Waste may involve a blatant instruction to destroy property.

A few cases discuss trusts to fund the performance of masses.34 Some mass-bequests might be easily construed as precatory. Others might be construed as individual bequests rather than purpose trusts. In Sherman v. Baker, the testator devised $100 to a priest to say masses for the testator.35 The gift was held valid as a gift to the priest.36 Alternatively, a gift for the purpose of saying masses could be upheld as sufficiently charitable in its purpose to be sustained, though it might be argued that its intent is to spiritually benefit the donor only.37 Occasionally, a devise to say masses might also coupled with a bequest to maintain a gravesite and the two purposes are mingled together in a single gift.38

Pet Trusts

A second kind of purpose trusts is the pet trust. Pet trusts have generated an enormous volume of scholarship.39 It’s claimed that the love of a pet motivates 25% of to include their pets in their wills.40 Because humans have affections for their pets and because pets exhibit consciousness, we may be tempted to treat pet trusts as similar to trusts for ascertainable beneficiaries. Despite the legal inability of a pet to sue a nonperforming trustee, pets may certainly vocalize their mistreatment (dogs, for example, yelp) to a much higher degree than other chattels. Still, the law largely treats animals like any other personal property.41 Over a hundred years ago, an English case recognized a testamentary gift for the maintenance of the testator’s horses.42 A widely known American case involved Thelma Russell’s bequest to her dog, Roxy.43 Thelma’s stated:

I leave everything I own Real & Personal to Chester H. Quinn & Roxy Russell44

33 E.g., Aitken’s Trustees v. Aitken, [1927] SC 374, 383 (Scot.) (invalidating a devise to construct a massive bronze of the testator as “irrational, futile, and self-destructive”). 34 Ausness, supra at 355. 35 Sherman v. Baker, 40 A. 11, 11 (R.I. 1898). 36 Id. at 12. 37 In re Smallman’s Will, 247 N.Y.S.593, 602 (1931). 38 E.g., Webster v. Sughrow, 45 A. 139, 139-40 (N.H. 1898) (quoting from a residual bequest to a trust “to pay the expense of keeping my burial lot in a proper and respectable condition, and for having anniversary mass said annually”). 39 For some reason, pet trust law review article titles nearly always utilize puns. E.g., Susan R. Abert, Pet Trusts: The Uniform Trust Codes Gives Enforceability a New Bite, N.H. B.J. 18 (Winter 2016); Katharine Coxwell and Wanda D. Devereaux, Paws Laws or How Nigel and Miss Muffy Came to be Rich, 67 ALA. LAW. 433 (2006); Jonathan P. Wilkerson, A “Purr”fect Amendment: Why Congress Should Amend the Internal Revenue Code to Apply the Charitable Remainder Exception to Pet Trusts, 41 TEX. TECH. L. REV. 587 (2009). 40 See GERRY W. BEYER, TEACHING MATERIALS ON ESTATE PLANNING 816 (4th ed. 2013) (citing surveys which show “that between 12% and 27% of pet owners include their pets in their wills.”). 41 E.g., State v. Smith, 83 N.E.3d 302, 311 (Ohio Ct. App. 2017) (considering and rejecting a 5th Amendment taking of property without due process claim to seizure of 47 puppies). 42 Mitford v. Reynolds, 16 Sim. 105, 60 Eng. Reprint, 812, 17 L. J. Ch. N. S. 238 (1848). 43 In re Estate of Russell, 444 P.2d 353 (Cal. 1968). 44 Id. at 355.

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Chester was a friend of the testator, but Roxy was an dog. The trial court construed the will as a devise of Roxy to Chester. But the will clearly contemplated a devise to Roxy (and Chester) not of Roxy. The California Supreme Court reversed. The text of the instrument was plain enough: one- half of the residue was devised to dog.45 As the devise was void, half of the residue passed by to a niece.46

The earliest pet trust decision in America is Willett v. Willett.47 There, a devise reserved $1,000 for a dog (named Dick), remainder to a church.48 The court reasoned that the trust could be sustained because the purposes were humane, even partially charitable, especially in view of the remainder interest to the church.49 The court explained: “This is not a devise to the dog Dick, but a trust created for his use and benefit.”50 Although the court did not consider the Rule against Perpetuities, the trust would qualify as exempt from RAP only if it deemed charitable. Technically, the trust for Dick was construed as being “humane,” not “charitable.” While acknowledging that typically a trust for a particular animal could not be construed as charitable, the court upheld the trust as “humane” under a Kentucky statute validating such gifts.51 Further, the court was untroubled by the testator’s failure to name a trustee, citing rule that no trust shall fail for want of a trustee; the courts may appoint one.52

Trusts for Other Noncharitable Purposes

The third category of noncharitable trusts is the miscellaneous category. Several varieties within this final “catch-all” category can be sketched. Perhaps the most common noncharitable purpose, in this category is the publication of personal papers. Theodore Schroeder (a lawyer) wrote and self-published a book titled Obscene Literature and Constitutional Law.53 Other self-published pamphlets followed, such as Divinity in Semen. His will devised his estate to two persons “to be expended in the collection and arrangement, and publication of my writing.”54

45 The facts were actually a bit more complicated than this. The Roxy Russell Airedale living at the time that its owner made her will “died after having had a fox tail removed from its nose” and was buried prior to Thelma Russell’s death. Id. at 355 n.2. Roxy number one was then replaced by another dog of unspecified breed – but also named Roxy (i.e., Roxy number two) – which survived her owner. Id. 46 Russell, 444 P.2d at 363-64. 47 Willett v. Willett, 247 S.W. 739 (Ky. 1923). 48 The will seemingly devised the estate in trust for her sister Minnie Willet and to the Hopewell Church with the exception of $1,000, which is to be used for the support of our dog ‘Dick,’ if the interest is not sufficient for him to be kept in comfort, that is being well fed, have a bed in the house by a fire and treated well every day, that the principal be used to such a sum so it will last his lifetime. I also give Mrs. Belilah Stevens $1000 for being kind fo me when I needed it. Dicky must have three meals daily. Willett, 247 S.W. at 739. 49 Willett, 247 S.W. at 740-41. 50 Id. at 740. 51 Id. 52 Willett, 247 S.W. at 740. 53 Fidelity Title and Trust Co. v. Clyde, 121 A.2d 625, 627 (Conn. 1956). 54 Id. at 627 n.1.

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The court construed the bequest a bequest in trust, despite the lack of the words “trust” or “trustee.”55 However, Schroeder had “neglected to designate beneficiaries who would be definitely ascertainable either at the time of his death or within the period of the rule against perpetuities.”56 The trustees contended that the trust was charitable; educational in its aims. A charitable categorization would have solved the unascertainable beneficiary defect since Attorney General enforcement would be supplied. The court acknowledged that “a trust to promote the dissemination of knowledge or of beliefs through the distribution of books or pamphlets may, in the absence of any profit element, qualify as a valid charity.”57

The court also acknowledged “the liberal construction we give to our statute of charitable uses.”58 However, the court gave one further hurdle to the trust’s validity – a public policy. The court had read at one of Schroeder’s pamphlets and found it “a truly nauseating experience.” And so instead, Schroeder’s estate was distributed to his first cousins.59

The Purpose “Enforcer” as Proxy for an Ascertainable Beneficiary

Noncharitable purpose trust must confront their inherent nonascertainable beneficiaries flaw if the law is to allow them. Beneficiaries secure the trustee’s duties. The lack of an ascertainable beneficiary (typically human, although an artificial legal person will also suffice) has historically been fatal to the creation of a private trust.60 A beneficiary – whether presently ascertainable or who will become ascertainable – is required.61 The problem of a trust with unascertainable beneficiaries is solved for charitable trusts by placing the Attorney General (or some kind of charitable commission) at the helm of enforcement.62 For noncharitable purpose trusts, the Attorney General’s role is unlikely to be expanded because noncharitable purpose trusts lack a public benefit. Instead, private enforcement seems preferable.

A noncharitable purpose trust needs its own enforcer or invigilate if it is to function as a trust.63 The office and appointment of an “enforcer” might be grafted into the trust agreement. This enforcer acts much like an Attorney General; she has standing to sue, just as a beneficiary would, to review and enforce the trustee’s fiduciary obligations. Indeed, the office of the enforcer is akin to a private attorney general.64 One might question the efficacy of a purpose trust enforcer, as many

55 Id. at 628-29. 56 Id. at 629 (citations omitted). 57 Id., citing RESTATEMENT (SECOND) OF TRUSTS (1959) § 370, cmt. a. 58 Clyde, 121 A.2d at 629 (statutory citation omitted). 59 Id. at 627, 630. 60 RESTATEMENT (THIRD) OF TRUSTS § 43 cmt. a (2003). 61 See Note, The Beneficiary of a Non-Charitable Trust, 42 HARV. L. REV. 813, 813 (1929) (explaining that “courts have upheld present trusts for unascertained persons, provided sufficient information is given to enable the intended beneficiaries to be ascertained in the future.”). 62 RESTATEMENT OF TRUSTS § 391 (1935). 63 See In re Astor’s Settlement Trusts, 1 ALL ER 1067 (1952) (explaining that the beneficiary principle reflects that because a purpose “cannot complain to the court,” a court cannot enforce a noncharitable purpose trust lacking ascertainable beneficiaries). Cf. Alexander A. Bove, Jr., The Purpose of Purpose Trusts, in 2 ASSET PROTECTION STRATEGIES: WEALTH PRESERVATION WITH DOMESTIC AND OFFSHORE ENTITIES 279 (Alexander A. Bove, Jr., ed., 2004) (hereinafter, Bove, Purpose of Purpose) (theorizing that a charitable trust actually has ascertainable beneficiaries who could enforce it – “members of the public”). 64 Bove, Purpose of Purpose at 282.

10 – Myers & Simmons have questioned the efficacy of the Attorneys General in the context of charitable trust enforcement. Will a noncharitable purpose trust enforcer vigorously advocate for the trust’s purpose? The consequences of a lazy Attorney General may be political. The consequences of a representative of a party (say a guardian ad litem) who is less than zealous are often in the form of liability to the represented party on account of the fiduciary relationship between the representative and the represented person. With a lax purpose trust representative, however, unless there is a consequence for failed diligence, how can proper advocacy be assured?

Imagine a trust where the trustee is directed to supervise the proper care of the settlor’s golden retriever. The trustee ignores her responsibilities and the poor dog is maltreated, abused, and eventually dies as a result. The architecture of a purpose trust relies on the enforcer asserting claims of fiduciary malfeasance against the trustee. But if the enforcer ignores her responsibilities as well, who has a claim against the enforcer? Certainly not the golden retriever; nor the deceased dog’s “estate” (indeed, there is no such thing).65 If there is no real consequence for a lax enforcer, then is no real consequence of a lax trustee.

Res Purpose Trusts

A purpose trust, the purpose of which is to preserve or maintain property, might own that property.66 The res of a pet trust, for example, might include the pet. Such a “res purpose trust” in fact might be recommended. After all, the trustee will be better able to discharge her responsibilities in ensuring the proper care of a pet if the trustee owns the pet and can retake possession of the animal if it is mistreated. If ownership rights have vested in a third party, the trustee will have difficulty in insisting upon finding the animal a new home if a neglectful owner resists. The trustee will also be better postured to insist upon periodically assessing the animal’s health and welfare as well, if the trustee retains ownership of it. Discharging the trustee’s obligation to confirm that the animal is still living would be simplified if the trustee retained ownership, if not necessarily possession, of the animal.

The same advantages can be seen with a trust formed for the purposes of preserving and maintaining real property or even intellectual property. Consider a trust to maintain a particular tree. While a trustee directed to prune and maintain a majestic oak might be able to achieve the trust’s aims even though the oak is located on property owned a third party, the trustee’s ability to satisfy the settlor’s objectives will be improved if the trust res includes the tree and underlying realty. Supervision and maintenance tasks are more achievable over property one owns. Attempts to wax someone else’s car may encounter challenges if the owner is uncooperative. It’s easier to wax one’s own automobile than someone else’s.

65 See INTERNATIONAL TRUST LAWS B4-3 (John Glasson, ed., 1993) (emphasizing that in the absence of authorizing legislation and aside from charitable trusts, “trusts for purposes or objects are invalid, for a purpose or object cannot sue.”). 66 E.g., Craig J. Krogstad and Matthew P. Bock, Modern Trust Governance, 31 S.D. L. REV. 370, 377 (2016) (recommending a purpose trust designed to own interests in a special purpose entity which can act as a trust protector which is in turn created for the governance of a separate dynasty trust).

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When the trustee holds legal title to a res which is connected to the purpose of a noncharitable purpose trust, the trustee will still typically enjoy the power (as legal owner) to encumber or transfer the property. There may be circumstances (where, for example, a buyer offers to purchase the res for a sum greatly exceeding its fair market value) where the trustee’s obligations to the remainder beneficiaries might be breached if the trustee ignores the offer, but the advantages typically inherent in a res purpose trust will give the trustee pause. This observation – that there is a built-in incentive for a trustee to retain unencumbered title to that part of a trust estate which the trustee is directed to maintain or preserve – illustrates something else as well. Although a directive to a trustee to never sell or encumber trust property is typically unenforceable as attempt to restrain alienation, designing trust architecture to discourage alienation or hypothecation can largely achieve this aim without running afoul of the alienation repugnancy doctrine. The trustee of a res purpose trust retains full powers of alienation over trust property, but is encouraged to retain unencumbered title so as best to achieve the noncharitable purposes of the trust. The trustee is thereby discouraged – but not prohibited – from losing title to the res of a res purpose trust.

Hybrid Purpose Trusts

Another variety of purpose trusts is the hybrid purpose trust. (Some might call them “mixed trusts.”67) A hybrid purpose trust is a trust for a noncharitable purpose with one or more concurrent ascertainable beneficiaries. Most every noncharitable purpose trust will have a successive ascertainable beneficiary; the taker or takers upon the accomplishment of the purpose in question. With a hybrid purpose trust, the trustee is directed to expend trust funds towards accomplishing a noncharitable purpose while also benefitting particular beneficiaries. There is no real objection to also including an ascertainable beneficiary concurrent with distributions to accomplish a particular noncharitable purpose.68

A. Some Purpose Trust Problems

Purpose trusts encounter several adversarial doctrines and rules which challenge their existence. The law exempts charitable trusts from the most formidable of these adversaries: the Rule against Perpetuities (RAP) and the beneficiary principle – the ban on remote vesting and requirement that every trust have one or more ascertainable beneficiaries who can enforce the trustee’s responsibilities. Because of the relief available to charitable purpose trusts, a recurring strategy is to argue that the trust in question qualifies as charitable. If a trust qualifies as charitable, it might be able to avoid invalidity because of a RAP defect or the absence of an ascertainable beneficiary. These same primary difficulties that purpose trust encounter are those from which charitable trusts are exempt, namely RAP and the beneficiary principle. Here, we’ll consider some unresolved income tax problems with purpose trusts, RAP, and a third snare, the rule (or rules) against capriousness.

67 See Rice v. Morris, 541 S.W.2d 627, 628 (Tex. Civ. App. 1976) (“A ‘mixed trust’ is usually defined as one which possesses private and public elements and is partly charitable and partly for the benefit of private individuals or non- charitable objects.”). 68 E.g., In re Howells’ Estate, 260 N.Y.S. 598 (N.Y. 1932), modified, 261 N.Y.S. 859 (N.Y. 1933) (considering a trust for five pets and one human being).

12 – Myers & Simmons

1. Income Tax Problems

Although noncharitable purpose trusts have been recognized, in fits and starts, for over a hundred years, authority on their treatment for purposes of the federal income tax is sparse.69 The taxation of purpose trusts has been described as “complex and not clearly defined.”70 A purpose trust often involves, as Alexander Bove notes, “some tricky if not odd, tax considerations” which must be taken into account.71 If an inter vivos purpose trust is structured as a “grantor trust,” then all of the tax activity of the trust will be taxed as if the settlor still owned the trust’s property.72 If a purpose trust is – or later becomes – a non-grantor trust, then the trust will report trust income and incur federal income tax liability under the steeply compressed trust income tax rates. The trust marginal income tax rates reach their maximum rate at $12,500.73 These compressed rates result in a serious disincentive. A trust, however, is allowed to claim a distribution deduction for its distributions.74 And a beneficiary receiving distributions must report the distributions in her gross income.75

Typically, then, the compressed tax rates can be avoided by distributing all income. The income will be taxed to the beneficiary according to individual tax rates which don’t reach the maximum rate until nearly half a million dollars.76 Distribution of all net trust income is often preferred for this reason, but how can a purpose trust trustee to “distribute” income to a purpose? Esteemed Boston attorney Alexander Bove re-asks the question:

[W]hat happens to these rules in the case of a purpose trust that distributes income for the upkeep of an automobile or the care of a cat? Obviously neither the car nor the cat will be filing a tax return, and it wouldn’t seem fair that the trust should simply be denied the distribution deduction and taxed at the higher trust tax rates, since it is not accumulating the income. On the other hand, to allow a deduction for trust distributions that are not taxed to anyone just won’t fly under our tax laws.77

The IRS issued a revenue ruling that continues to be the primary authority for the income tax rules for purpose trusts in 1976.78 The IRS reasoned that pet trust distributions to a non-person could not be deductible as distributions, since no one would be taxed on them.79 The taxpayer question arose out of a pet trust; the IRS correctly concluded that an animal could not qualify as a “beneficiary” under the Code.80 However, the IRS went on, the trust should not be taxed at the higher trust tax rates since the trustee had not accumulated the income, but had distributed it for pet care costs.81 Instead, the trust should be taxed at the rate of a married individual filing

69 Beyer & Wilkerson, at 1220. 70 Wendy S. Goffe, An Introduction to Lesser-Known but Useful Trusts – Part II, 37 EST. PLAN. 3, 3 (2010). 71 Bove, Purpose of Purpose at 287. 72 26 U.S.C. §§ 167-679 (2017). 73 26 U.S.C. § 1(3) (2017); Rev. Proc. 2016-55, Table 5. 74 26 U.S.C. §§ 641, 651 (2017). 75 26 U.S.C. §§ 642, 652 (2017). 76 26 C.F.R. § 1.1-1 (2017). 77 Bove, Purpose of Purpose at 287. 78 Rev. Rul. 76-486, 1976-2 C.B. 192. 79 Id. at 3. 80 Id. at 2. 81 Rev. Rul. 76-486, 1976-2 C.B. 192 at 3.

13 – Myers & Simmons separately.82 The reliability of the last portion of this reasoning was weakened when Congress enacted section 1(e) of the tax code adding a new rate of tax for both trusts and estates.83 Today, most commentators agree, a purpose trust would be taxed on its distributions to non-persons at the compressed trust income tax rates.84 The trust would be taxed (as a complex trust) as if it had not made any distributions.85 Thus, trust income would suffer under the compressed trust tax brackets even if the trustee had actually distributed all income to the pet-beneficiary.

Hybrid purpose trusts introduce additional complexities. Consider two trusts: The first is a typical trust for a testator’s two surviving children which continues until the youngest reaches her 30th birthday. The children are both in their early 20s and reside rent-free in a home situated on their deceased parent’s farmland, which is now an asset of their trust. The trustee maintains and insures the farmland and leases it to a neighbor. Each month, the trustee distributes the net rental income to the two children-beneficiaries.

The second trust in this hypothetical is a hybrid purpose trust. As in the previous example, the beneficiaries of the trust are the testator’s two surviving children. The noncharitable purpose of the trust is to maintain and preserve the testator’s farmland, which is an asset of the trust. Thus, the trust is also a res purpose trust. The primary aim of the trust is to support the beneficiaries, but a secondary purpose is to maintain the farm. The trustee applies income from trust investments to maintain and insure the farm which is leased to a neighbor. The trustee distributes the net income to the two beneficiaries.

With both trusts, the income distributed to the children-beneficiaries is deductible at the trust level, and taxable to the children as income.86 With the first trust, as the trustee incurs ordinary expenses associated with maintaining and insuring the agricultural property owned by the trust, the trustee may deduct them from otherwise taxable trust income.87 Should not the second trust – identical to the first except with regards to the additional noncharitable purpose of preserving the farm ground – receive the same treatment?

Congress has imposed the federal income tax on trusts’ net income, resting an allowance for deductions of reasonable expenses as “determined under the terms of the governing instrument and applicable local law.”88Whether a given expense should be charged to income or principal depends on the nature of the expense in question, the terms of the trust, and the particular local accounting principles governing fiduciaries.89 Thus, setting aside a portion of income to account for the depreciation of a wasting asset can be appropriate, depending on the trust terms and local

82 Id. 83 26 U.S.C. § 1(e) (2017). 84 Beyer & Wilkerson at 1227-28. 85 Zenov and Ruiz-Gonzalez at 25. 86 26 U.S.C. § 662(a) (2017). 87 26 U.S.C. §643(b) (2017). 88 Id. 89 M. CARR FERGUSON, JAMES J. FREELAND, AND MARK L. ASCHER, FEDERAL INCOME TAXATION OF ESTATES, TRUSTS, & BENEFICIARIES §7.02 (Supp. 2004).

14 – Myers & Simmons law.90 If an expense is deductible, then taxable income is reduced.91 (This point skirts additional concerns like simple and complex trusts, distributable net income concepts, the allocation of expenses, and whether the ultimate tax liability falls on the trust or a trust beneficiary.) Generally, “repairs to, taxes on, and other expenses directly attributable to the maintenance of rental property or the collection of rental income are allocated to rental income.”92 Likewise, expenditures from an operational business held in trust may be allocated to the business income being generated.93

In the 1976 Revenue Ruling, the analysis was premised on the idea that the trustee would be making distributions to (or at least for the direct benefit of) a dog. Thus, the pet trust functioned just like a trust for the benefit of a human in which distributions might also be made either directly or for the benefit of, the human beneficiary. The trustee of a trust for an individual, for example, might distribute cash to the individual, or it might make distributions to third parties for the individual’s benefit, prepaying tuition, advancing rental payments to the individual’s landlord, reimbursing medical providers who treated the individual, and so on. Of course, it would be impossible to convey cash to a dog, but a trustee certainly could purchase dog food for the dog in a manner very similar to a trustee purchasing potato chips for a human. The difference, for the IRS, lay in the fact that the purchase of potato chips for a human would result in a K-1 tax form. The human would then report the value of the chips as taxable income. Dogs don’t file 1040s or pay income tax, so the dogfood distribution had to be reported as income by the trust. The IRS was concerned – rightly – with the potential for income tax avoidance if no one was responsible for the income tax which ought to be generated on noncharitable income.

The 1976 Revenue Ruling did not consider whether a pet trust could deduct any of expenses. It certainly seems that the IRS contemplated that in calculating its taxable income, a pet trust could deduct its investment losses, the trustee’s fees, the investment manager’s fees, and the accountant’s charge for preparing the trust’s tax return.94 It seems, therefore, that the IRS retained for noncharitable purpose trusts the distinction between distributions and deductible expenses. Typically, a distribution can be distinguished from an expense because an expense represents a value retained within the trust (e.g., in repairing fence on trust property, the trustee is preserving and maintaining trust property) or an expenditure outside the trust which represents taxable income to its recipient (e.g., paying the trust’s income tax preparer for her services) or both. An outer limit on the reasonableness of an expense would permit the deduction of ordinary dogfood, but not steak and lobster dinners with a pet trust benefitting a dog.

Extending this rationale, some commentators have suggested that pet trusts could mitigate their unfavorable income tax treatment by naming the pet’s caretaker as a beneficiary (e.g., a hybrid purpose trust).95 A trust adopting this idea might provide: “In addition to preserving the testator’s dog, the trustee will distribute $400/month to the current beneficiary where the ‘current beneficiary’ means the individual or individuals in whose household said dog lives.” With this

90 Levin v. Commissioner, 335 F.2d 987, 988 (5th Cir. 1966); Estate of Little v. Commissioner, 274 F.2d 718, 719 (9th Cir. 1960). 91 26 C.F.R. § 1.652(b)-3(b) (2017). 92 26 C.F.R. §1.652(b)-3(a) (2017). 93 Id. 94 But see Knight v. Comm’r, 128 S.Ct. 782 (2008) (holding investment advisory fees are deductible only to extent that they exceeded 2% of trust's adjusted gross income). 95 Veronica Cerruti, Unleash Creative Planning Ideas for Clients with Pets, 42 EST. PLAN. 10 (2015).

15 – Myers & Simmons kind of pet trust, the trustee’s distributions to the beneficiaries would represent distributions taxable to the beneficiaries and therefore deductible. Alternatively, could not the trustee of a pet trust without any concurrent ascertainable beneficiaries hire a caregiver for Rover and deduct those caregiver costs as trust expenses? The 1976 Revenue Ruling says no. But it was not presented with either the scenario of a res purpose trust or a hybrid purpose trust.96

2. The Rule against Perpetuities

The Rule against Perpetuities (or RAP) frees up the alienability of property otherwise undermined by future interests. Future interests themselves create property market distortions and ought to be contained, claim RAP advocates. Stated another way, it is socially desirable that wealth be controlled not by the dead but by the living. The rule is simple enough to state: “No interest is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest.”97 RAP thus “prevents the creation of any future interest in property which does not vest within twenty-one years after some life or lives presently in being plus the period of gestation if gestation is in fact taking place.”98 The judges who mapped RAP in the Duke of Norfolk’s case had in mind the idea that a donor ought to be able to “provide for all of those in his family whom he personally knew and the first generation after them upon attaining majority” (then age 21) but no more.99 An example involving RAP’s interactions with purpose trusts can be seen in Searight’s Estate.100 George Searight will’s provided:

I give and bequeath my dog, Trixie, to Florence Hand of Wooster, Ohio, and I direct my executor to deposit in the Peoples Federal Savings and Loan Association, Wooster, Ohio, the sum of $1000.00 to be used by him to pay Florence Hand at the rate of 75 cents per day for the keep and care of my dog as long as it shall live. If my dog shall die before the said $1000.00 and the interest accruing therefrom shall have been used up, I give and bequeath whatever remains of said $1000.00 to be divided equally among those of the following persons who are living at that time, to wit: Bessie Immler, Florence Hand, Reed Searight, Fern Olson and Willis Horn.101

The executor acted as trustee, retaining the $1,000 fund, and Florence Hand accepted the bequest of Trixie.102 The state department challenged the bequest as a means to overturn the estate’s inheritance tax calculations, but the probate court concluded that although the dog (worth $5) was taxable as a succession, only the remainder interests could be taxed to the remaindermen.103 The Ohio inheritance tax subjected bequests to individuals, institutions, and corporations, but none other. So the probate court reasoned that Ohio statutes did not levy any tax “upon succession to any property passing to an animal.”104

96 Contra Barbara Graham and Diane Gary, Attention Lawyers: Sit, Stay, Plan, 43 MD. B.J. 12, 17 (Mar./Apr. 2010). 97 JOHN CHIPMAN GRAY, THE RULE AGAINST PERPETUITIES 191 (4th ed. 1942). 98 Freeman’s Estate, 404 P.2d at 227 (citation omitted). 99 Duke of Norfolk's Case (1682) 3 Ch Cas 1; 22 ER 931. 100 In re Seawright’s Estate, 95 N.E.2d 779 (Ohio App. 1950). 101 Id. at 780. 102 Id. 103 Id. 104 Id.

16 – Myers & Simmons

The department of taxation tried to assert that the bequest for Trixie’s care was invalid.105 It claimed first that the bequest was invalid as an “” and second that it violated RAP. The court dismissed the first argument since a Ms. Hand was willing to administer the bequest. Turning to the RAP argument, the court calculated that since it would take less than five years to consume 75¢/day even if the $1,000 was invested at 6%, it was “very apparent” that “such time limit is much less than the maximum period allowed under the rule against perpetuities.”106 Therefore, Trixie’s trust was valid (and, to the extent funds were expended on Trixie, the bequest was nontaxable).

Searight Estate’s RAP analysis is neat, but wrong. If the remaindermen must survive the termination of the trust before their interests vest, it will not be known whether those interests vest until the death of Trixie. “In applying the rule against perpetuities to contingent future interests, the question is not: Will the future interest probably vest within the period? Rather it is this: Must it necessarily vest within the period, if it vests at all?”107 A dog is not a measuring life, so the question is whether the dog’s life will come to an end within 21 years. It may not. Theoretically, even a testamentary bequest to vest “when my debts or paid” would violate RAP. In traditional RAP states, even a pet trust for a mayfly would violate the rule.108

Adroit drafters typically include a RAP “savings clause,” but the savings clause does serve to terminate the trust at a relatively early date. A savings clause may allow a trust subject to RAP to last around ninety years, but this may be inadequate for a trust for a parrot. It may also be inadequate to accomplish any number of other noncharitable purposes. The best solution is to situs a purpose trust in a jurisdiction without RAP.

3. The Rule against Capriciousness

A third purpose trust stumbling block for consideration is the rule against capriciousness. The rule remains a formidable foes to purpose trusts. As deployed here, capriciousness is a rather free- floating concept. One person’s vision might be another’s cantankerous whimsy.109 Grouped with trusts void for capriciousness, I will include trusts void for violating public policy, since an almost undifferentiated analysis is generally applied.110 Some public policy trust offenses are both

105 Id. at 781. 106 Searight’s Estate, 95 N.E.2d at 783. 107 3 LEWIS SIMES AND ALAN SMITH, THE LAW OF FUTURE INTERESTS § 1228 (3rd ed. 2016). 108 See In re Estate of McNeil, 41 Cal. Rptr. 139, 142 (Calif. Ct. App. 1964) (reasoning that a trust to pay $50/week for two dogs violates RAP). 109 See RESTATEMENT OF TRUSTS § 124 (1935) (requiring the purpose of a noncharitable purpose transfer to not be capricious). Illegal trusts include: (1) the performance of the intended trust or of the provision involves the commission of a criminal or tortious act by the trustee; (2) the enforcement of the intended trust or provision would be against public policy, even though its performance does not involve the commission of a criminal or tortious act by the trustee; (3) the purpose of the settlor in creating the trust is to defraud creditors or other third persons; (4) the consideration for the creation of the trust is illegal. RESTATEMENT OF TRUSTS § 60 cmt. a (1935). 110 See, e.g., James’ Estate, 199 A.2d 275, 277, 279 (Pa. 1964) (finding fault with a 400-year income accumulation mandate in a charitable trust on account of it being “absurd,” “unreasonable,” “unnecessary, charitably purposeless, and contrary to public policy”).

17 – Myers & Simmons sensible and clearly mapped. Others less so. Although all trusts are subject to disqualification on grounds of illegality or public policy, the courts seem to be appreciably less deferential when noncharitable purpose trusts are being reviewed.111 In this context, the underlying motives and purposes of the individual donor can be key, as are the practicalities of achieving the settlor’s aims. The very power of testamentary freedom, it is said, is granted by the state so that an individual “may use it for the benefit of other men who survive him and to this end only can it be validly exercised.”112 This is a paternalistic approach. A purpose which is, in the court’s view, wasteful or useless will not be honored.113 An aim which is too vague or too indefinite will be ignored. Nearly any purpose might be challenged on public policy grounds.114

B. A Brief Summary of Existing State Codes

The key elements of a particular state’s laws to be considered include the scope and clarity of its purpose trust legislation, but also the status of its Rule against Perpetuities, the Rule against Accumulations, the policy or rule against unreasonable restraints on alienation. The purpose trust legislation itself should clarify the role of the enforcer, speak to the availability of cy pres, or its noncharitable equivalent, and clarify the availability and functionality of hybrid and res purpose trusts.

Before considering the ACTEC Rocky Mountain Region states’ codes, brief mention should be made of the Cayman Islands’ purpose trust legislation. Purpose trusts were first recognized not in the United States but in overseas jurisdictions which market their trust environments as a favorable situs for the wealthy. Bermuda was the first jurisdiction to adopt noncharitable purpose trust legislation in 1989.115 The Cayman Islands 1997 “STAR trust” legislation is often seen as the most flexible of any jurisdiction.116 The acronym “STAR” stands for Special Trusts (Alternative Regime) Law.117 The Cayman Islands expressly authorize both hybrid purpose trusts as well as noncharitable purpose trusts which blend in charitable provisions: “(1) The objects of a special trust or power may be persons or purposes or both…(3) The purposes may be of any number or kind, charitable or non-charitable…”118 Thus, mixed charitable/noncharitable purpose trusts are permissible. Enforcers are clothed with fiduciary responsibilities in enforcing a purpose trust.119 A sort of noncharitable cy pres applies when a Cayman Islands purpose trust has become obsolete,

111 See UNIF. TRUST CODE § 404 (2003) (requiring that of all trusts that they “be created only to the extent its purposes are lawful, not contrary to public policy, and possible to achieve.”). 112 GLANVILLE WILLIAMS, SALMOND ON JURISPRUDENCE 445 (12th ed. 1966). 113 Bove, Purpose for Purpose at 283. 114 Kelly v. Nichols, 21 A. 906, 908 (R.I. 1891) (invalidating a trust to keep a clock in repair); In re Gassiot, 70 L.J. Ch. 242 (1901) (invalidating a trust to preserve a portrait); Kennedy v. Kennedy [1914] A.C. 215 (P.C.) (invalidating a trust to maintain the testator’s residence). 115 Bove, Purpose of Purpose at 292 n.6. 116 See id. at 284 (stating that “commentators feel that one of the most flexible of the off-shore purpose trust statutes is that of the Cayman Islands”). 117 Id. 118 C.I. TRUSTS LAW § 99 (2011 rev.). However, strangely, ascertainable beneficiaries of a hybrid STAR trust lack any standing to enforce the trustee’s duties. C.I. TRUSTS LAW § 100(1) (2011 rev.). 119 C.I. TRUSTS LAW § 101(2) (2011 rev.). Typically, a STAR trust “enforcer has the same rights as a beneficiary of an ordinary trust…” C.I. Trusts Law § 102(a) (2011 rev.).

18 – Myers & Simmons impractical, or unlawful.120 Two limitations of the STAR trust should be noted, however. First, at least one trustee must be a licensed Cayman Islands corporate trustee.121 Second, a STAR Trust may not hold real property of the Cayman Islands.122 It may, however, own interests in an entity which owns Cayman Islands realty.123

1. Colorado Code

Colorado boasts some detailed and thoughtful purpose trust provisions. Hybrid trusts are quite clearly contemplated in the 21-year term limit for purpose trusts which lack an ascertainable beneficiary.124 And although the trust’s resources must be devoted only to the trust’s purposes (seemingly leaving no room for a beneficiary), this is offset as being merely a default rule.125 Moreover, rather than an unforgiving, remorseless RAP “what might happen” analysis, purpose trusts may simply be performed by the trustee for 21 years “but no longer…”126

Interestingly, enforcers may be designated in the trust instrument or “by a remainder beneficiary” and it is unclear whether this is a default or mandatory provision.127 Seemingly, it would not always be desirable to allow purpose trust enforcement by the remainder beneficiary, especially since their interests may run contrary to the noncharitable purpose, such as where a trust for a pet is followed by a remainder distribution to an heir. So too, the provision which permits the purpose to be enforced “by the person having custody of an animal for which care is provided by the trust instrument…”128 Colorado is unique in having engineered its decanting provisions to fit with purpose trusts.129

2. Idaho Code

Idaho’s Code permits a trust to “be created for any purpose, charitable or uncharitable…”130 This is broad, indeed. Idaho also acknowledges that a purpose trust does not require a beneficiary (thereby suggesting that it might have one; a hybrid purpose trust).131 Idaho’s code also addresses the removal and replacement of an enforcer.132 Although not specifically incorporating trust

120 C.I. TRUSTS LAW § 104 (2011 rev.); see also C.I. TRUSTS LAW § 103 (2011 rev.) (providing that a STAR “trust is not rendered void by uncertainty”). 121 C.I. TRUSTS LAW § 105 (2011 rev.). 122 C.I. TRUSTS LAW § 109 (2011 rev.); compare Isle of Man Purpose Trusts Act of 1996 § 5 (“No land or any interest in any land in the Island shall be held, directly or indirectly, in a purpose trust.”). 123 C.I. TRUSTS LAW § 109 (2011 rev.). 124 COLO. REV. STAT. § 15-5-409 (2019). 125 COLO. REV. STAT. § 15-5-409.5(a) (2019). 126 COLO. REV. STAT. § 15-5-409 (2019). 127 COLO. REV. STAT. § 15-15-409.5(d) (2019). 128 Id. It’s also somewhat puzzling how pet trusts refer to the animals as trust beneficiaries. See COLO. REV. STAT. § 15-15-408 (2019). 129 See COLO. REV. STAT. § 15-16-923(2)-(4) (2012) (labeling an enforcer of a pet trust a “protector”); see also COLO. REV. STAT. § 15-5-110(3) (treating purpose trust enforcers as qualified beneficiaries). 130 IDAHO CODE ANN. § 15-17-601(1) (2019). 131 IDAHO CODE ANN. § 15-17-601(2) (2019); but see IDAHO CODE ANN. § 15-17-601(1) (stating that purpose trusts “shall exist to serve a purpose” thereby arguably leaving no room for a beneficiary as well). 132 IDAHO CODE ANN. § 15-7-601(4), (5) (2019).

19 – Myers & Simmons protector provisions, the expansive definition of a trust protector would seem to encompass a purpose trust enforcer as well.133

Any interested person may bring an action to enforce a purpose trust. An interested person includes:

heirs, devisees, children, spouses, creditors, beneficiaries and any others having a property right in or claim against a trust estate or the estate of a decedent, ward or protected person which may be affected by the proceeding. It also includes persons having priority for appointment as , and other fiduciaries representing interested persons. The meaning as it relates to particular persons may vary from time to time and must be determined according to the particular purposes of, and matter involved in, any proceeding. In a guardianship or conservatorship proceeding, it also includes any governmental agency paying or planning to pay benefits to the ward or protected person and any public or charitable agency that regularly concerns itself with methods for preventing unnecessary or overly intrusive court intervention in the affairs of persons for whom protective orders may be sought and that seeks to participate in the proceedings.134

3. Montana Code

Montana has adopted two code sections which track UTC sections 408 and 409.135 Two primary problems with the UTC sections on purpose trusts can be identified. First, hybrid purpose trusts those which simultaneously benefit both beneficiaries and a noncharitable purpose) are not accounted for and may even be impermissible. Second, trust reformations which operate similar to the ways in which an analogue to cy pres work (but without attorney general involvement, obviously) ought to have been considered.

Settlors will often desire to create a hybrid noncharitable purpose trust. A parent might desire to create a for her minor children while ensuring the care of the family dog. Although section 408 does not prohibit this sort of arrangement, it does not contemplate it, either. The text of section 408 could even be read to prohibit hybrid pet trusts. Subsection (3) of UTC 408 which states:

Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use. Except as otherwise provided in the terms of the trust, property not required for the intended use must be distributed to the settlor, if then living, otherwise to the settlor’s successors in interest.136

133 See IDAHO CODE ANN. § 15-7-510(g) (2019) (“Trust protector” means any disinterested third party whose appointment is provided for in the trust instrument.). 134 IDAHO CODE ANN. § 15-1-201(25) (2019). The statutory cross-reference is off by one numeral. 135 MONT. CODE ANN. §§ 72-38-408, 72-38-409 (2019). 136 UNIF. TRUST CODE § 408(c).

20 – Myers & Simmons

The first sentence, although not expressly exempted by section 105 as a provision which cannot be drafted around, is placed alongside the second sentence which clearly indicates its default nature. A court might read the first sentence, therefore, as a mandatory rule. And if the property of a pet trust may “be applied only to its intended use” then it seems that either distributions to ascertainable beneficiaries are impermissible, or simply that a hybrid pet purpose trust is unauthorized.137

Still another problem with section 408 can be noted. It states: “The trust terminates upon the death of the animal…”138 The settlor in our hypothetical probably desires her trust to continue until the children attain certain ages, not when the dog dies. This provision is a default draft-around provision pursuant to UTC section 105.139 Thus, it would seem easy to draft around, and yet do we then have a Rule against Perpetuities problem?

Section 409, dealing with other sorts of noncharitable purpose trusts, also contains certain defects. First, its 21-year term limit could unravel a hybrid purpose trust earlier than intended.140 Moreover, section 409 disallows hybrid purpose trusts.141 It authorizes only trusts “for a noncharitable purpose without a definite or definitely ascertainable beneficiary.”142 What was probably intended is an authorization for trusts for a noncharitable purpose notwithstanding the lack of an ascertainable beneficiary, but this is not what the text actually says. And because this provision relates to the creation of a purpose trust, it seemingly represents a mandatory rule which cannot be drafted around.143 Noncharitable purpose trusts where the trustee selects the purpose do not suffer from the requirement of lacking ascertainable beneficiaries.144

With regards to non-hybrid purpose trusts, the options of equitable deviation or beneficiary- compelled trust reformations are plausible. Under UTC section 411(b), non-material purpose medication of a purpose trust without the settlor’s approval (i.e., after the settlor’s death) would require the consent of the purpose trust enforcer as well as the ascertainable remainder beneficiaries of the trust.145 Under UTC section 411(e), a court could approve a modification which

137 Id. 138 UNIF. TRUST CODE § 408(a). 139 UNIF. TRUST CODE § 105(b). See also UNIF. TRUST CODE Art. I general cmt. (emphasizing that the UTC “is primarily a default statute.”). Some provisions within the purpose trust sections of the code, strangely, seem more default rules than others in that they emphasize their default nature. E.g., UNIF. TRUST CODE § 409(3)) (providing that “[e]xcept as otherwise provided in the terms of the trust, property not required for the intended use must be distributed to the settlor…”) (emphasis supplied); UNIF. TRUST CODE 408(c) (providing the same with regards to pet trusts). 140 UNIF. TRUST CODE § 409(1). While the life-of-animal and 21-year trust term limits in the UTC would appear to be draft-around provisions (see UTC section 105), these provisions typically provide an exception to an otherwise- applicable Rule against Perpetuities or similar rule and therefore should be viewed as mandatory. 141 One might try to read section 409(1) as permitting trusts for a noncharitable purpose notwithstanding the lack of ascertainable beneficiaries. 142 UNIF. TRUST CODE § 409(1) (emphasis supplied). Read literally, even an ordinary (non-hybrid) purpose trust with ascertainable remainder beneficiaries would seem to run afoul of the text of section 409(1). A trust for the benefit of an oak tree, remainder to the settlor’s issue per stirpes would have ascertainable beneficiaries, for instance. 143 Compare UNIF. TRUST CODE § 409(1) (providing that trusts “may be created for a noncharitable purpose without a definite or definitely ascertainable beneficiary”) (emphasis supplied) with UNIF. TRUST CODE § 105(b)(1) (indicating that “the requirements for creating a trust” are mandatory) (emphasis supplied). 144 See UNIF. TRUST CODE § 409(1) (“A trust may be created … for a noncharitable but otherwise valid purpose to be selected by the trustee.”). 145 UNIF. TRUST CODE § 411(b).

21 – Myers & Simmons did not disturb a material purpose so long as the non-consenting beneficiary or enforcer’s interests are adequately protected.146 What constitutes a material purpose has proved elusive, and will undoubtedly only be more uncertain when applied to purpose trusts.147 The material purpose rubric for purpose trusts therefore seems misplaced and imperfect.

A purpose trust may require modification because its purpose has become impractical or wasteful. While wastefulness might be remedied as an over-funding problem under section 409(c), impracticality lacks a cy pres analogue. Instead, what’s needed, it seems, is a cy pres sort of rule for noncharitable purpose trusts. A rule permitting modifications when a noncharitable purpose becomes unlawful, impractical, impossible, or wasteful would account for trust revisions that do not otherwise fall within the ordinary trust reformation procedures.

4. New Mexico Code

Like Montana, New Mexico has modeled its code sections off the UTC provisions.148 It is not necessary to repeat the analysis given to Montana’s code sections here.

5. North Dakota Code

The same goes for North Dakota.149

6. South Dakota Code

Beginning in 2006, South Dakota authorized purpose trusts with a statutory enactment stating that “a trust may be performed if the trust is for a specific lawful noncharitable purpose.”150 Other statutes enacted alongside this provision related to trusts for the care of a designated animal, such as a pet.151 A purpose trust may be enforced by a person designated by the trust instrument or appointed by the court.152 The court may also reduce the amount with which the trust was funded “if it determines that the amount substantially exceeds the amount required for the intended use.”153 Nothing in the old purpose trust statutes appeared to prohibit a drafter from blending an honorary trust with a trust for designated individual beneficiaries.154 Nothing in those statutes barred the grantor from funding the trust with the property to be honored, either.155

146 UNIF. TRUST CODE § 411(e). 147 See Bradley E.S. Fogel, Terminating or Modifying Irrevocable Trusts by Consent of the Beneficiaries – A Proposal to Respect the Primacy of the Settlor’s Intent, 50 REAL PROP. TR. & EST. L.J. 337, 358 (2006) (explaining that “courts have found unfulfilled material purposes in most trusts” so that termination or reformation “is impossible even if all of the beneficiaries consent.”). 148 See infra Part IV(D). 149 See infra Part IV(E). 150 S.D.C.L. § 55-1-20 (2012). 151 S.D.C.L. §§ 55-1-21, 55-1-22 (2012). 152 S.D.C.L. § 55-1-22(4) (2012). 153 S.D.C.L. § 55-1-22(6) (2012). 154 See S.D.C.L. § 55-1-22(1) (2012) (stating: “Except as expressly provided otherwise in the trust instrument, no portion of the principal or income may be converted to the use of the trustee or to any use other than for the trust’s purposes”). 155 Compare 12 DEL. C. § 3555(e) (authorizing the pet for which a pet trust is created to be transferred to the trustee in the event that the pet’s designated successor owner disclaims ownership); ISLE OF MAN PURPOSE TRUSTS ACT OF

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Then in 2018, a bill was introduced to amend its three purpose trust statutes. The changes were part of the South Dakota Governor’s Task Force on Trust Administration Review and Reform’s bill. Certain key elements of South Dakota’s new purpose trust statutes are briefly explicated below.

First, “res purpose trusts” are specifically authorized. The relevant statute states: “Any property may form a part or all of the trust estate, including some, all, or an interest in some or all of the property which is the subject or purpose of a purpose trust.”156 Thus, a trust may benefit a settlor’s pet, for example, while retaining ownership of that pet as a part of its trust estate. Or a trust may benefit a ranch while also maintaining an ownership interest in that ranch.

Second, “hybrid purpose trusts” were specifically authorized.157 When the interests of beneficiaries and the advancement of a purpose are concurrent, the trustee is directed to maintain separate shares, “one for the beneficiaries; and a second for the purposes…”158 If a trustee fails to do so, the purpose trust is not rendered invalid, but the trustee “may be liable to the beneficiaries for the actual damages caused thereby, if any, for failing to do so.”159 Out of concerns with the uncertainty of how hybrid trusts might be treated for income tax purposes, the task force elected to direct trustees to segregate amounts for beneficiaries and purposes into separate trust shares. The separate shares should be taxed at least in part as if they were separate trusts.160

A third notable aspect of the South Dakota legislation is its fleshing out of the role of the purpose enforcer. Enforcers are deemed to be fiduciaries and, as a default rule, entitled to reasonable compensation for their role in trust administration.161 Enforcers may be removed for breaching their duties.162 Thus, real expectations for the office of the purpose trust enforcer are clarified. The enforcer must take the place of ascertainable beneficiaries or – in the case of charitable trusts – the office of the Attorney General.

South Dakota has repealed the Rule against Accumulations.163 South Dakota has also repealed its Rule against Perpetuities.164 A prohibition against conditions which restrain alienation remains.165 Suspending the absolute power of alienation for a period longer than the lives of persons in being

1996 pt. 1 § 5 (“No land or any interest in any land in the Island shall be held, directly or indirectly, in a purpose trust.”) Isle of Man special purpose trusts’ duration are limited to 80 years. Id. pt. 1 § 1(1). 156 S.D.C.L. § 55-1-20 (Supp. 2018). 157 S.D.C.L. § 55-1-22 (Supp. 2018). 158 Id. 159 Id. 160 See Morris Trusts v. Commissioner, 51 T.C. 20 (1968) acquiescence in part and nonacquiescence in part recommended, 1968 WL 16716 (I.R.S. AOD 1968), aff’d per curiam, 427 F.2d 1361 (9th Cir. 1970). See also 26 C.F.R. § 1.641(a)-O(c) (2017) (providing that multiple trusts without substantially independent purposes, the same grantor, the same beneficiary, and having as their principal purpose the avoidance or mitigation of progressive income tax rates will be treated as one trust for income tax purposes). 161 S.D.C.L. § 55-1-21(5) (Supp. 2018). 162 S.D.C.L. § 55-1-21(6) (Supp. 2018). 163 S.D.C.L. § 43-6-4 (2017). 164 See S.D.C.L. § 43-5-8 (2017) (proclaiming: “The common-law rule against perpetuities is not in force in this state.”). 165 S.D.C.L. § 43-3-5 (2017).

23 – Myers & Simmons plus thirty years violates the rule.166 Suspending the power of a trustee to alienate trust property is similarly barred.167 The trustee must be given the power to sell trust property to avoid the application of this rule.168 Limited exceptions apply with regards to charitable trusts and cemetery transfers.169 Thus, under a typical dynastic trust the trustee’s power to sell trust property may be suspended for no longer than a period equal to the lives in being plus an additional 30 years.

7. Texas Code

Texas recognizes pet trusts but not other varieties of noncharitable purpose trusts. Hybrid pet trusts seem to be not allowed since distributions must be applied only to the trust’s “intended use” and any excess funds (except as otherwise provided by the trust) must be distributed to the settlor or his heirs.170 On the other hand, the perpetuities provisions for pet trusts do seem to acknowledge the possibility of combining ascertainable beneficiaries with a pet trust.

On the one hand, a pet trust will terminate on the death of the animal it was created to care for (or, if multiple animals, on the death of the last surviving animal).171 On the other hand, Texas’ Rule Against Perpetuities applicable to trusts (other than charitable trusts) provides:

[A]n interest is not good unless it must vest, if at all, not later than 21 years after some life in being at the time of the creation of the interest, plus a period of gestation.172

And the pet trust statute provides that the lives in being used to determine a trust’s maximum duration are:

(1) the individual beneficiaries of the trust;

(2) the individuals named in the instrument creating the trust; and

(3) if the settlor or are living at the time the trust becomes irrevocable, the settlor or settlors of the trust or, if the settlor or settlors are not living at the time the trust becomes irrevocable, the individuals who would inherit the settlor or settlors' property under the law of this state had the settlor or settlors died intestate at the time the trust becomes irrevocable.173

It seems that either a pet trust must satisfy either the animal-life-in-being requirement in subpart (a) of the statute or the individual humans described in subpart (f) of the statute – or perhaps both.

166 S.D.C.L. § 43-5-1 (2017). 167 S.D.C.L. § 43-5-4 (2017). 168 Id. “[T]here is no suspension of the power of alienation by a trust or by equitable interests under a trust if the trustee has the power to sell, either express or implied, or if there is an unlimited power to terminate in one or more persons in being.” Id. 169 S.D.C.L. § 43-5-7 (2017). 170 TEX. PROP. CODE ANN. § 112.037(c) (2019). 171 TEX. PROP. CODE ANN. § 112.037(a) (2019). 172 TEX. PROP. CODE ANN. § 112.036 (2019). 173 TEX. CODE PROP. ANN. § 112.037(f) (2019).

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8. Utah Code

Utah’s Code permits per trusts.174 It also permits other varieties of noncharitable purpose trusts, but with the same unfortunate language from the UTC that was noted above which suggests that hybrid purpose trusts are impermissible.175 Its section 408 and 409 analogues within its trust code simply authorize pet trusts and other kinds of purpose trusts. Its primary statute is modeled after the section which first authorized purpose trusts (then often-called “honorary trusts”).176 Hybrid trusts seem to be impliedly authorized.177 Pet trusts may last for the life of the pet.178 Other purpose trusts last not more than 21 years unless they are hybrid trusts.179 In that case, Utah’s generous Rule Against Perpetuities presumably applies.180

9. Wyoming Code

Wyoming’s code sections, like Montana’s and New Mexico’s are modeled closely on UTC sections 408 and 409 (though they are frustratingly mis-numbered as sections 409 and 410). It also smartly adds: “No common law rule limiting the duration of noncharitable purpose trusts is in force in this state.”181 This is to address what has been called the shadowy twin of RAP, a full discussion of which is beyond the scope of this paper.182 Professor Adam Hirsch terms this rule “a second, (unnamed) rule, shadowing the Rule Against Perpetuities, though not identical to it.”183

C. Purpose Trusts Meet Other Uniform Laws.

1. Uniform Law Commission

The National Conference of Commissioners on Uniform State Laws, also known as the Uniform Law Commission (ULC),184has existed since 1892. The ULC has one purpose, “to study and

174 UTAH CODE ANN. § 75-7-408 (2019). 175 UTAH CODE ANN. § 75-7-409 (2019). The statute says that a trust can be “created for a noncharitable purpose without a definite or definitely ascertainable beneficiary…” Id. See also supra Part II(B)(3) (discussing UTC sections 408 and 409 in connection with Montana’s trust code). 176 UTAH CODE ANN. § 75-2-1001 (2019); compare UNIF. PROBATE CODE § 2-907 (2010) (reprinted supra in Part IV(K)). 177 See UTAH CODE ANN. § 75-2-1001(1) (2019) (limiting the trust term to 21 years if there is no ascertainable beneficiary). 178 UTAH CODE ANN. § 75-2-1001(2) (2019). 179 UTAH CODE ANN. § 75-2-1001(1) (2019). 180 See UTAH CODE ANN. § 75-2-1203(1)(2019) (“A nonvested property interest is invalid unless within 1,000 years after the interest's creation the interest vests or terminates.”). 181 WYO. STAT. ANN. § 4-10-410(a)(iv) (2019). 182 See Adam J. Hirsch, Trusts for Purposes: Policy, Ambiguity, and Anomaly in the Uniform Laws, 26 FLA. ST. U. L. REV. 913, 933 (1999); accord, HERBERT THORNDIKE TIFFANY, A TREATISE ON THE MODERN LAW OF REAL PROPERTY AND OTHER INTERESTS IN LAND 260 (1940) (confirming that RAP “is concerned only with the time of the vesting of an estate, and not with the duration of an estate already vested.”). This second rule is concerned with trust duration. 183 Hirsch, supra at 931-32; see also J.H.C. Morris and H.W.R. Wade, Perpetuities Reform at Last, 80 L.Q. REV. 486, 531 (1964) (suggesting the rule against noncharitable trusts which last too long be called “‘the rule of law rendering void for remoteness’ certain dispositions” which “has the merit of novelty, but is not likely to please anyone.”) 184 The ULC exists as a non-profit unincorporated association, comprised of state commissions on uniform laws from each state. Although the legal name of the organization in the National Conference of Commissioners on

25 – Myers & Simmons review the law of the states to determine which areas of law should be uniform.”185 Using study and drafting committees, the ULC then creates uniform or model acts in these areas. The ULC and its commissioners then encourage the states to adopt these acts into their laws.

Currently, the ULC consists of representatives from all 50 states, the Commonwealth of Puerto Rico, the District of Columbia and the United States Virgin Islands. The states and other jurisdictions determine the membership of the ULC by adopting state specific methods for selecting commissioners. All commissioners must be members of a state bar, though not necessarily of the state they represent, and generally work as practitioners, judges, and academics. Some serve in state legislators or as legislative counsel.

Although the goal of the ULC is to create uniform laws and have those laws enacted without change in all jurisdiction, this rarely happens. Even if states do not adopt a particular uniform act they may use the act as a template for the laws they do adopt.186 For example, while only 21 jurisdictions have adopted the Uniform Probate Code, many other jurisdictions have used the UPC as a model act in drafting their non-uniform provisions. Even those jurisdictions that adopt uniform acts sometimes make non-uniform additions or exclusions. In addition, the ULC often revises its acts and some states that have adopted earlier versions of a uniform act do not adopt the revisions. The bottom line is that while uniformity is the goal, it is a goal rarely achieved.

Over the last few years, the ULC has been active in the trust and estates area. The ULC has created several new acts and adopted revisions to many others. The ULC has also adopted and revised several acts not generally considered trust and estate acts, but which affect the trusts and estates area indirectly, e.g., the Uniform Parentage Act.

While drafting committees make every attempt to make sure the uniform laws are consistent with one another, some inconsistencies persist. Since jurisdictions rarely adopt all acts and all revisions, most states may have provisions that do not cover all the gaps that the uniform laws as a group may have covered.

Purpose Trusts generally and Animal Trusts in particular, do not always get full consideration by drafting committees. Since the original decision to give these trusts statutory guidance, the ULC has worked to adopt provisions dealing with the “defects” suffered by these trusts under common law. These can be roughly identified as: (1) the lack of an ascertainable beneficiary with standing enforce the trust; (2) the lack of an ascertainable beneficiary or other measuring life for purposes of the Rule Against Perpetuities; and (3) the lack of a person to whom the trustee could give notice, accountings, reports etc. This section will look at the core uniform acts and how they dealt with these issues. We will then review the rules, uniform and non-uniform, from the states in the Rocky Mountain region and how they deal with the same problems.

Uniform State Laws, the organization decided a little over a decade ago to begin using the easier name of Uniform Law Commission in media and other public communications. 185 See https://www.uniformlaws.org/aboutulc/overview. 186 In addition to uniform acts, the ULC sometimes drafts model acts with the expectation that the models will not be adopted as written.

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2. Uniform Probate Code

The ULC adopted the Uniform Probate Code in 1969. The ULC has amended it several times, with the most recent amendments adopted last July. Some of these amendments consisted of Acts dealing with specific sub-issues that a state could enact independently of its decision to adopt the UPC. For example, a state can enact the Uniform Disclaimer of Property Interests by itself or as Part 11 of the UPC.

The ULC adopted changes to the UPC in 1990 that explicitly recognized purpose trusts. It did so through optional provisions added to the part of the UPC dealing with Uniform Statutory Rule Against Perpetuities. 187 About 47 states enacted statues similar to the 1990 amendments and thus allow purpose trusts to survive RAP challenges.188 UPC 2-907 does not give any person the power to enforce the provisions of a Purpose or Animal Trust and does not require the settlor to name such a person for the trust to be valid.

3. Uniform Trust Code

The ULC adopted the Uniform Trust Code in 2000 and amended it in 2010.189 The UTC provides specific language authorizing Animal Trusts and Purpose Trusts (more specifically, a Noncharitable Trust Without Ascertainable Beneficiary).190 In addition to providing some more rules on governing purposes trusts, the UTC makes it clear that the trusts to not require ascertainable beneficiaries.

Section 409 puts a general time limit for purpose trusts of 21 years.191 The timeframe is bracketed, which in ULC parlance means that 21 years is suggested, but that states are invited to insert any period they wish without the law being deemed non-uniform.

Section 408 is not subject to the 21-year limit, but is limited to times period bounded by the death of an animal alive when the settlor dies. Some animals could live beyond 21 years. However, the USRAP generally provides that any condition that resolves itself before the expiration of 90 years will still be valid. Some animals, e.g., tortoise, koi fish, can live for more than 90 years. UPC 2- 907(b) would allow trusts for these long-lived animals to continue, while states that do not have that language might not.

187 The Uniform Statutory Rule Against Perpetuities can be adopted as a standalone rule or as Part 9 of Article 2 of the UPC. The language dealing with Purpose Trusts (called Honorary Trusts) and Animals is in UPC 2-907. 188 Many of those states have since repealed the UPC provisions because of they decided to deal with Purpose and Animals Trusts through their trust codes or because changes to their rules against perpetuities eliminated the primary reason for invalidating the trusts. 189 The ULC had previously adopted a Uniform Trusts Act in 1937. Only six states adopted the act (South Dakota being one of those states). Parts of the Uniform Trusts Act were adopted into the UTC. 190 UPC 2-907 refers to Purpose Trusts as “Honorary Trusts” but has placed that term in brackets, encouraging states to use their own appropriate term. Although theoretically an Animal Trust is a Purpose Trust, the UTC can be read as prohibiting the use of a UTC 409 trust for purpose of caring for an animal. 191 Section 409 does make reference to trusts that might be approved under other statutes. This is a recognition that some states allow specific limited purpose trusts to exist in perpetuity. E.g., trusts to provide perpetual care of a cemetery plot.

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4. Uniform Directed Trust Act

The ULC drafted the Uniform Directed Trust Act (UDTA) to offer guidance on a common trust administrative arrangement. Settlors create trusts that provide for a trustee, but which also gave some other person the authority to require the trustee to do some action. We will call this person a “trust director.”192 The most common powers granted to trust directors were the making of discretionary distributions to beneficiaries and the determination of investment strategy, but cover a wide range of powers. The documents would usually use clear language that absolutely required the trustee to follow these directions.

The sole guidance in the UTC appears in Section 808.193 It provides that “the trustee shall act in accordance with an exercise of the power unless 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.”194

Trustees expressed concern on how to comply with their fiduciary obligations. In keeping with the general format of the UTC, settlor’s may place restrictions on the actions of their trustees. Trustees, however, also have fiduciary obligations. For example, a trustee has a duty of prudence concerning investment. Would a trustee be liable for investing the trust corpus in an imprudent manner because the trust director ordered that investment?195

The UDTA provides guidance by specifically acknowledging the existence and use of trust directors. It deals with the liability issue in two ways:

(1) First, it specifically provides that a trustee will bear no responsibility if it follows the orders of a trust director as long as following those orders will not require the trustee to engage in willful misconduct.196

(2) Second, it obligates the trust director to exercise, or not exercise, its power to direct subject to the same fiduciary and liability as “if the power is held individually, as a sole trustee.”197

Suppose a settlor creates a trust and gives a power to a person to make distributions, but that the power is to be held in a nonfiduciary capacity? The UDTA provides that the power to designate a

192 These individuals had many different names in practice, with “trust advisor,” “trust protector” and “trust director” being the most common. The UDTA used the term “trust director,” which it defines as “a person that is granted power of direction by the terms of a trust to the extent the power is exercisable while the person is not serving as trustee.” UDTA (2)(9). 193 The use of trust directors should be distinguished from the use of cotrustees. The UTC provides guidance on what to do if the settlor allows one trustee to have sole discretion in one area while giving another trustee the discretion to act in another. UTC 703. 194 UTC 808(b). 195 One of the professional trustees serving as an observer to the drafting committee recounted a situation where a trust director told him to invest one hundred percent of the corpus in an LLC. The trust director would tell him the nature of the LLC’s business, its capital structure or the risk associated with the investment. 196 UDTA 9(b). 197 UDTA 8(a)(1)(A).

28 – Myers & Simmons person as the recipient of an ownership interest in trust property is a power of appointment.198 Trustees do not have liability for following for distributing trust property to the appointee of a power of appointment because the exercise of the power terminates the trustee’s ownership of that property.

The UDTA does not allow a settlor to give a trust director control over any action of the trustee other than distributions in a nonfiduciary capacity. The settlor can, however, give the trust director extended discretion, exculpation or exoneration in a manner similar to which those things could be provided to any trustee.199

The UDTA applies to all trusts administered in a state.200 The UDTA provides no exclusion for Purpose or Animal Trusts so it should apply to them as it would to any other trust.

5. Uniform Trust Decanting Act

Trustees use decanting to make changes to trust documents without the need for seeking court approval. Trustees administering documents with mistakes, unhelpful administrative provisions and similar issues wanted to fix those problems, but the trustees did not want to bear the expense of a proceeding. We assume courts would rather not have these easy fixes on their dockets.

Practitioners began to look for some method to allow these fixes without involving the courts. They settled on the idea of using the power given to many trustees to make distributions of principal. Could the trustee use this power to distribute the corpus from one trust to another trust that had all of the offending language removed and replaced? They concluded that as long as they followed their fiduciary duties, the practice would be okay. In some states, practitioners just started decanting, while others sought specific authorization under state law.

The ULC formed a drafting committee to create a uniform act on trust decanting because several states had already adopted nonuniform laws and others had a common law right for decanting. Because trustees can easily move trusts between jurisdictions, the ULC determined that uniformity between jurisdictions would be helpful in preventing conflicts and allow trustees to more accurately determine the extent of their powers.201

Although decidedly arguable, the drafting committee assumed that the decanting power was inherent in the trustee’s powers. A case regularly cited for this proposition is Phipps v. Palm Beach Trust Co.202 The case concerned a testamentary trust created by woman for the benefit of her children. The surviving spouse and Palm Beach Trust Co. were the named trustees.

198 UDTA 5(c). 199 Comments to UDTA Section 8. 200 UDTA 3(a). The UDTA does identify certain powers that do not cause the holder to meet the definition of a trust director. UDTA 5(b). This includes, generally, powers held in a nonfiduciary capacity. 201 The drafting committee particularly wanted to focus on making sure that any attempted decanting that would disrupt a settlor’s tax planning would be ineffective and to allow, to the extent possible, trustees to modify trust language to qualify the trust as a “.” 202 196 So. 299 (1940).

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The pertinent provision of the trust stated:

At any time within the duration of this trust, as hereinafter provided, upon the written direction of the then Individual Trustee, the Trustees shall pay over and transfer all or any part of the rest, residue, and remainder of the trust estate, both principal and income, which may at such time remain and be in the hands of the Trustees to the said John H. Phipps, Hubert B. Phipps, Margaret Douglas and Michael G. Phipps and to the descendants of any of them, in such shares and proportions as the said Individual Trustee, in his or her sole and absolute discretion, shall determine and fix even to the extent of directing the payment of the entire trust estate to one of said parties. The written direction of the said John S. Phipps may be contained in his last , anything herein to the contrary notwithstanding.

The spouse, as Individual Trustee, told the corporate trustee to transfer the entire corpus to new trust. This new trust was basically similar to the original except that it allowed one of the children to create an income interest in the trust, by will, for the benefit of his surviving spouse, if any. The corporate trust brought the action because it was not sure that the law allowed the action.

The Florida Supreme Court determined that the law allowed the creation of the new trust. It did so based on the breath of the language creating the power to distribute, analogizing to a power to appointment. It announced a rule “The general rule gleaned from the foregoing and other cases of similar import is that the power vested in a trustee to create an estate in fee includes the power to create or appoint any estate less than a fee unless the donor clearly indicates a contrary intent.” The position adopted in Phipps has support in the Restatement (Third) of Property (Wills and other Donative Transfers) § 17.1.203

The UTDA allows two types of decanting.

(1) If the trust agreement gives the Trustee expanded distributive discretion,204 the Trustee has broad powers to create a new trust for the benefit of a current beneficiary. Although there are some limitations on what the second trust may do, e.g., it may not destroy noncontingent vested interests, the trustee has broad powers consistent with the distributive power to structure the second trust.

(2) If the trust agreement only gives the Trustee limited distributive discretion,205 the Trustee may still decant the first trust, but the second trust must have beneficial interests, which are substantially similar to the beneficial interests of the second trust.

203 RESTATEMENT (SECOND) OF PROPERTY: DONATIVE TRANSFERS §§ 11.1, 19.4, also provided support for decanting, but did so by finding the power akin to a special power of appointment. The third restatement does not use that analogy because the decanting power, unlike a power of appointment, is still subject to a trustee’s fiduciary obligations. 204 “A discretionary power of distribution that is not limited to an ascertainable standard or a reasonably definite standard.” UTDA (2)(11). 205 “A discretionary power of distribution that is limited to an ascertainable standard or a reasonably definite standard. UTDA (12)(a).

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The UTDA also provides specific provisions that allow the decanting of a trust for the benefit of a person with disabilities into a special needs trust. This power allows the Trustee to create a second trust that severally limits the ability to the beneficiary to access the funds and to create broad distribution discretion in the trustee. The decanting power applies even if the trustee has limited discretion under the first trust.

Most importantly for our purposes here, the UTDA has a specific provision dealing with Animal Trusts.206 The section specifically allows the trustee of an animal trust to decant the trust, but only if the trust agreements names a “protector” that has the ability to enforce the trust or if a court appoints a protector for that purpose. In exercising the decanting power, the trustee is required to act as if each animal beneficiary were an individual. Most importantly, the protector must consent to the decanting. This contrasts with the general rule under the UTDA that a trustee may exercise the decanting power “without the consent of any person and without court approval.”207

Other than the animal trust section, the UTDA does not refer to Purpose Trusts, but it does apply to them. “This act applies to an express trust that is irrevocable or revocable by the settlor only with the consent of the trustee or a person holding an adverse interest.”208 Applying the UTDA to purpose trusts does present challenges because their need not be a “protector” outside of animal trusts. However, notices under UTDA Section 7 would still go the trust’s remainder beneficiary, charitable or otherwise, so someone with an interest in the trust would still be informed of the potential decanting.

A greater challenge would be determining which standard to apply to the decanting. Decanting under the expanded and limited distributive distribution rules make reference to the power to distribute to beneficiaries. Purpose trusts have no beneficiaries to whom property can be distributed. By the terms of the UTDA, the limitations that would apply to trustees with either of these types of distribution power do not apply.209

The fact that none of the limitations should affect the ability to use decanting generally for purpose trusts. The trustee would still be subject to general fiduciary duties, particularly the obligation to act in accordance with the purposes of the trust.210 Actually, the decanting power could often be a method of maintaining the settlor’s original intent. For example, a trust created to provide ice cream each Friday to all the students at Millard Fillmore Middle School could be decanted into a new trust to provide income to the students of Calvin Coolidge Middle School when the school district decides to close Millard Fillmore and send all the students Calvin Coolidge.

206 UTDA (23). 207 UTDA (7)(b). 208 UTDA (3)(a). The UTDA excludes trusts hold solely for charitable purposes and trust containing language that restricts or prohibits exercise of decanting. UTDA(3)(b)-(c). 209 The same would also be true of the power to decant to a special needs trust under UTDA(13) because that power only applies if the trust has a disabled beneficiary. 210 UTDA (4).

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6. Uniform Fiduciary Income and Principal Act

The ULC adopted UFIPA in 2018. UFIPA is a revision of the Uniform Principal and Income Act.211 Utah became the first state to enact UFIPA this year.

UFIPA updates many of the sections in the old Uniform Principal and Income Act, but the most significant change is the expansion of the ability to allocate receipts between income and principal.

(1) The first method in UFIPA consists of clarification, and arguably and expansion, of the ability of the Trustee to make adjustments between income and principal. First added to the Principal and Income Act in 1997, the drafting committee continues to see this power to adjust as vital given the Prudent Investor Act’s focus on modern portfolio investment theory. Because a properly invested trust corpus could produce an excess of income, or growth, the power to adjust allows the trustee comply with its duty of impartiality by allocation receipts to the income and remainder beneficiaries in “equitable amounts.”

(2) The second method in UFIPA is the option in the trustee to convert a trust to a unitrust. Several states had adopted rules allowing these kinds of conversions. The reasoning behind the unitrust conversion was that having just the power to adjust to repair any problems with the receipts from prudent investing could create conflicts of interest if the trustee also had an interest in the trust.

UFIPA’s provisions for allocating receipts should apply without difficulty or adjustment to purpose trusts. One thing to note, however, is the application of the notice provisions. A trustee who exercises the power to adjust must notify the qualified beneficiaries of the trust at least annually.212 A trustee can only exercise the unitrust conversion power after notice is provided to qualified beneficiaries and any trust director or person holding trust director like powers.213

Unlike the UTDA, UFIPA does not have a specific provision allowing providing for notice in Animal Trusts to be given to specially appoint a trust director for purposes of receiving notices. It also does not contain a provision similar to UTDA 23(c) providing that a person given the right to enforce the trust on behalf of an animal has all the rights of a qualified beneficiary.

211 The Uniform Principal and Income Act was first adopted in 1931, with revisions in 1962 and 1997 and amendments in 2000 and 2008. A version of this Act has been adopted in nearly every state. The ULC changed the name of the act to avoid acronym confusion with the Uniform Prudent Investor Act. 212 UFIPA 203(k). The information can be part of the annual report required under UTC 813 or at least otherwise communicated annually. 213 UFIPA 304.

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D. The States and Uniform Laws: An Analysis

1. Colorado Code

Colorado has enacted the UTDA, UDTA, UPC, UTC and an older version of the UPIA.

Colorado has a hybrid structure of the UPC and UTC when dealing Purpose and Animal Trusts. When Colorado enacted the UTC, it adopted shorter versions of Sections 408214 and 409215 with a separate section that provides rules common to Animal Trusts and other purpose trusts.216 These sections are primarily on UPC 2-907 rather than the UTC versions. Although the provisions does have some specific differences from the UTC,217 the general structure of Colorado’s purpose trust provisions has all the important structural aspects from the UTC.

Colorado has identical language enacted as part of its Probate Code.218 It does not appear that the legislature repealed the Probate Code versions of the statues when the Trust Code ones were adopted.

Interestingly, the Colorado version of the Directed Trust Act refers to the Probate Code version when it grants Trust Director status to individuals who have authority to enforce an animal trust.219 A person given authority to enforce a trust will be treated as a Trust Director for purposes of the directed trust rules and will receive notice of any proposed decanting of the trust.

Colorado has not adopted UFIPA, but its version of the Prudent Investor Act has adopted the older version of the power to adjust and a Colorado specific version of the power to make a unitrust conversion. The Colorado power to adjust may not be used by a trustee who is a beneficiary of the trust or who might indirectly benefit from the just even though not a beneficiary.220 The trustee may not make the unitrust conversion if any beneficiary objects. It appears that the trustee of an Animal Trust would not be able to convert the trust to a unitrust without receiving court approval.221

2. Idaho Code

Idaho has a nonuniform law governing the use of “Trust Protectors” and “Trust Advisors.”222 The statutory language does not specifically provide that a person given the authority to enforce an

214 COLO. REV. STAT. § 15-5-408. 215 COLO. REV. STAT. § 15-5-409. 216 COLO. REV. STAT. § 15-5-409.5. 217 For example, Colorado’s version provides that a person who has custody of an animal is given specific authority to enforce the “intended use of the principal and income” (Colo. Rev. Stat. § 15-5-409.5(d)) while the UTC only gives a person with an “interest in the welfare of the animal” the ability seek court appointment of a person to enforce the trust (UTC 408(b)). 218 COLO. REV. STAT. § 15-11-901. 219 COLO. REV. STAT. § 15-16-923 (1)(b). 220 COLO. REV. STAT. § 15-1-404 (3)(g) & (h). 221 COLO. REV. STAT. § 15-1-404 (3)(a) allows the trustee to seek court approval of the conversion when the trustee is not allowed to proceed without court approval because the trust lacks an income beneficiary or a remainder beneficiary. 222 IDAHO CODE ANN. § 15-7 Part 5.

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Animal Trust on behalf of an animal would be a Trust Protector or Trust Advisor, but the creation of certain other powers could bring a person under those definitions.223

Idaho does not have a statute authorizing or limiting Trust Decanting. There is also no guidance as to whether the Idaho courts would be open to the existing of Phipps decanting under Idaho common law.

The Idaho Uniform Probate Code does not contain UPC 2-907 allowing Purpose and Animal Trusts. It does, however, contain provisions allowing purpose trusts.224 Nothing in the language allowing purpose trusts would prevent those trusts from being usied to benefit animals. Idaho purpose trusts do not have any maximum term. This is possible because Idaho has no rule against perpetuities.225

Idaho’s Prudent Investor Act contains a trustee’s power to adjust.226 Although the statutory language contains no specific guidance, it appears that the power to adjust exists as long as the trustee is not otherwise a beneficiary of the trust.227 The specific Idaho statutory language does not require any notice to be given to any person other than a beneficiary and, unless the trust agreement otherwise provides, a person given the power to enforce a purpose trust will not receive notice of any proposed exercise of the power to adjust.

3. Montana Code

Montana has enacted UPC 2-907 allowing honorary trusts and trusts for pets to exist despite their violation of the rule against perpetuities.228 Montana has also enacted UTC 408229 and 409.230 Montana has enacted the power to adjust as part of its Principal and Income Act.231 It does not have a power to make a unitrust conversion. Montana does not have either a trust decanting act or a director statute.

So Montana allows Purpose Trusts and Animal Trusts. If Montana courts would otherwise allow common law trust decanting, it is not clear that any notice would be given to a person given the power to enforce Purpose or Animal Trusts. The same is true for any decision by the trustee to exercise the power to adjust.

223 E.g., a trust instrument that gave a person the power to direct the trustee to distribute funds for the benefit of the animal would make that person a Distribution Trust Advisor. IDAHO CODE ANN. § 15-7-501(1)(a) and (11). The person would also be a Trust Protector under Idaho Code Ann. § 15-7-501(6)(e). 224 IDAHO CODE ANN. § 15-7 Part 6. 225 IDAHO CODE ANN. § 55-111 226 IDAHO CODE ANN. § 68-10-104. 227 IDAHO CODE ANN. § 68-10-104(c)(7). Idaho Code Ann. § 68-10-104(d) does provide that a non-beneficiary cotrustee can exercise the power to adjust. 228 MONT. CODE ANN. § 72-2-1017. 229 MONT. CODE ANN. § 72-38-408. 230 MONT. CODE ANN. § 72-38-409. 231 MONT. CODE ANN. § 72-34-424.

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4. North Dakota Code

North Dakota does not have UPC 2-907, but has adopted UTC 408232 and 409.233 North Dakota has adopted nonuniform statutes covering trust decanting and directed trusts.

The North Dakota Trust Decanting statutes234 create a host of issues for purpose trusts. For example, the statutory language provides that exercise of the decanting power is “considered to be the exercise of a special power of appointment.”235 It later provides, however, that the trustee exercising the power “has a fiduciary duty to exercise the power in the best interests of the objects of the exercise and as a prudent person would exercise the power under the prevailing circumstances.”236 One of the things that distinguishes powers of appointment from other powers of distribution is the fact that they do not carry fiduciary duties. These provisions thus create an inherent conflict.

The North Dakota Directed Trustees rules237 create three categories of individuals who can give direction to trustees: “distribution trust advisor,”238 “Investment Trust Advisor”239 and “Trust Protector.”240 The rules provide a series of default powers of each of the types of directing parties that will apply unless the trust agreement provides otherwise. The directing parties are also specifically made fiduciaries.

The North Dakota Principal and Income Act includes the Power to Adjust.241 In 2017, the North Dakota legislature also adopted provisions allowing a trustee to convert income trusts into unitrusts.242 These provisions were not integrated into the Principal and Income Act and operate as a separate section. The power to make convert a trust to a unitrust is limited to disinterested trustees.243 A person who is an “advisor or protector of the trust” must receive notice of the intention to convert the trust to a unitrust.244 However, there is no provision that automatically makes a person who has the ability to enforce a Purpose or Animal Trust an advisor or protector.

6. South Dakota Code

South Dakota has not adopted the UPC and has no equivalent to UPC 2-907. South Dakota has enacted trust decanting powers as part of the duties provided to trustees.245 A trustee with a beneficial interest in the trust can still exercise the power, but cannot do so in a way that would

232 N.D.C.C. § 59-12-08. 233 N.D.C.C. § 59-12-09. 234 N.D.C.C. § 59-16.1. 235 N.D.C.C. § 59-16.1-06. 236 N.D.C.C. § 59-16.1-10. 237 N.D.C.C. § 59-16.2. 238 N.D.C.C. § 59-16.2-02(2). 239 N.D.C.C. § 59-16.2-02(6). 240 N.D.C.C. § 59-16.2-02(8). 241 N.D.C.C. § 59-04.2-03. The statutory language is from the 1997 version of the Uniform Principal and Income Act, but was only adopted by the North Dakota Legislature in 2017. S.L. 2017, Ch. 416 §2 (2017). 242 N.D.C.C. § 59-16.3. 243 N.D.C.C. § 59-16.3-02. 244 N.D.C.C. § 59-16.3-02(2)(d). 245 S.D.C.L. § 55-2-15 to -21.

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South Dakota has enacted nonuniform statutes governing directed trusts.250 The statutory language creates four types of individuals who can give direction to trustees: “Trust Protectors,251” “Investment Trust Advisors,”252 “Distribution Trust Advisors,”253 and “Family Advisors.”254 There is no language providing that a person with the power to enforce a Purpose of Animal Trust will be governed by the statutory language absent having some other additional power.

South Dakota has not enacted the UTC, but has enacted specific authority for the creation of Animal Trusts255 and Purpose Trusts.256 Purpose trusts are not subject to any “rule against perpetuities, nor any rule restricting the accumulation of income, nor any common law rule limited the duration of noncharitable purpose trusts.”

The South Dakota Principal and Income Act includes the Power to Adjust.257 The power to convert to a unitrust has been enacted as a separate power in the trustee.258

7. Texas Code

Texas has not adopted the UPC. However, the Texas Estates Code is very similar to the UPC. It does not, however, contain any analogue to UPC 2-907.

Texas has also not adopted the UTC. Texas has enacted its statutes governing trusts into its Property Code.259 Texas has enacted a specific statute governing Animal Trusts that uses some of the language from UTC 408.260 Texas retains the common law rules against perpetuities.261 Animal

246 S.D.C.L. § 55-2-15(3) 247 S.D.C.L. § 55-2-18. 248 S.D.C.L. § 55-2-18. 249 S.D.C.L. § 55-2-13. 250 S.D.C.L. § 55-1B. 251 S.D.C.L. § 55-1B-1(2). 252 S.D.C.L. § 55-1B-1(6). 253 S.D.C.L. § 55-1B-1(7). 254 S.D.C.L. § 55-1B-1(10). 255 S.D.C.L. § 55-1-21(1). 256 S.D.C.L. § 55-1-20. 257 S.D.C.L. § 55-13A-104. This language largely follows the 1997 Uniform Principal and Income Act. 258 S.D.C.L. § 55-15-1. The North Dakota version appears to have adopted the South Dakota language. 259 TEX. PROP. CODE ANN. Title 9. 260 TEX. PROP. CODE ANN. § 112.037. 261 TEX. PROP. CODE ANN. § 112.036.

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Trust survive the perpetuities rules because the statue provides measuring lives.262 Texas has no provisions governing other Purpose Trusts.

Texas as enacted statutory language governing trust decanting.263 The notice provisions only provide that notice must go to current and remainder beneficiaries and not to trust protectors or others given authority to enforce a trust.264

The Texas rules governing directed trusts does not contain specific provisions including a person with power to enforce an Animal Trust.265 If the person has other powers related than that person will be a trust advisor.266

Texas has adopted the power to adjust in its Principal and Income Act.267

8. Utah Code

Utah has adopted the UTC along with versions of UTC 408268 and 409.269 It has also adopted the UDTA.270

Utah has not adopted any decanting statute and it is not known if the state’s courts would recognize common law decanting.

Utah has enacted UFIPA, which will become effective July 1, 2020.271 This includes both the power to adjust272 and the power to convert to a unitrust.273

9. Wyoming Code

Wyoming has adopted the UTC rules governing Animal Trusts274 and Purpose Trusts.275 Wyoming has not adopted the UPC and has no analogue to UPC 2-907. Wyoming specifically exempts purpose trusts from any perpetuities period.276

262 TEX. PROP. CODE ANN. § 112.037(f). The potential measuring lives are any individual beneficiaries named in the trust, a person named by the settlor as a measuring life, or the settlor (which would limit the trust to a duration of 21 years if the trust has no other measuring life. 263 TEX. PROP. CODE ANN. Subchapter D. 264 TEX. PROP. CODE ANN. § 112.074(b). 265 TEX. PROP. CODE ANN. § 114.0031. 266 Id. The included powers would be the ability to make investment decisions, the power to remove and appoint trustees, the power to amend or modify the trust terms, or the power to modify the terms of a power of appointment. 267 TEX. PROP. CODE ANN. § 116.005. 268 UTAH CODE ANN. § 75-7-408. 269 UTAH CODE ANN. § 75-7-409. 270 UTAH CODE ANN. § 75-12. 271 Chapter 495, 2019 General Session. 272 UTAH CODE ANN. § 22-3-203. 273 UTAH CODE ANN. § 22-3-303 274 WYO. STAT. ANN. § 4-10-409. 275 WYO. STAT. ANN. § 4-10-410. 276 WYO. STAT. ANN. § 4-10-410(a)(4).

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Wyoming has adopted nonuniform language governing trust protectors.277 There is no language identifying individuals with a right to enforce a Purpose or Animal Trust as a trust protector or advisor.

The Wyoming Uniform Principal and Income Act contains the power to adjust.278 Wyoming has also enacted a nonuniform Wyoming Unitrust Act giving the trustee the power to convert.279

Wyoming does have limited language which appears to provide statutory authority for trust decanting by giving the trustee the power to:

Distribute all or any portion of trust income or principal in further trust for the benefit of the trust beneficiaries pursuant to authority granted in the trust instrument to make discretionary or mandatory distributions of trust income or principal to the trust beneficiaries, whether or not the discretionary or mandatory distributions are pursuant to an ascertainable standard.280

This power is slightly limited and cannot be used in a way that would impact the any tax planning associated with the trust or change the interest of a beneficiary who is also trustee.281

III. CONCLUSION

Purpose trusts are not a new thing. They are, in fact, a rather old thing. Still, until now they have largely remained in the shadows; curiosities and oddballs that merit discussion only in the context of an overly-affectionate pet owner who has left a care fund for her dog or an overly-devour testator who left monies for the purpose of maintaining her parents’ graves. Nowadays, they seem to be catching on in a much wider sense. It remains to innovative and creative estate planning attorneys to find places where they might legitimately achieve a client’s important and dearly-held objectives.

277 WYO. STAT. ANN. § 4-10-710 to 718. 278 WYO. STAT. ANN. § 2-3-804. 279 WYO. STAT. ANN. § 2-3-901 to 917. 280 WYO. STAT. ANN. § 4-10-816(a)(xxviii) 281 WYO. STAT. ANN. § 4-10-816(b)

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VI. APPENDIX: Rocky Mountain Region States’ Statutory Provisions

A. Colorado Code

§ 15-11-901. Honorary trusts; trusts for pets

(1) Honorary trust. Subject to subsection (3) of this section, and except as provided under sections 38-30-110, 38-30-111, and 38-30-112, C.R.S., if (i) a trust is for a specific, lawful, noncharitable purpose or for lawful, noncharitable purposes to be selected by the trustee and (ii) there is no definite or definitely ascertainable beneficiary designated, the trust may be performed by the trustee for twenty-one years but no longer, whether or not the terms of the trust contemplate a longer duration.

(2) Trust for pets. Subject to this subsection (2) and subsection (3) of this section, a trust for the care of designated domestic or pet animals and the animals' offspring in gestation is valid. For purposes of this subsection (2), the determination of the “animals' offspring in gestation” is made at the time the designated domestic or pet animals become present beneficiaries of the trust. Unless the trust instrument provides for an earlier termination, the trust terminates when no living animal is covered by the trust. A governing instrument shall be liberally construed to bring the transfer within this subsection (2), to presume against the merely precatory or honorary nature of the disposition, and to carry out the general intent of the transferor. Extrinsic evidence is admissible in determining the transferor's intent. Any trust under this subsection (2) shall be an exception to any statutory or common law rule against perpetuities.

(3) Additional provisions applicable to honorary trusts and trusts for pets. In addition to the provisions of subsection (1) or (2) of this section, a trust covered by either of those subsections is subject to the following provisions:

(a) Except as expressly provided otherwise in the trust instrument, no portion of the principal or income may be converted to the use of the trustee, other than reasonable trustee fees and expenses of administration, or to any use other than for the trust's purposes or for the benefit of a covered animal or animals.

(b) Upon termination, the trustee shall transfer the unexpended trust property in the following order:

(I) As directed in the trust instrument;

(II) If the trust was created in a nonresiduary clause in the transferor's will or in a to the transferor's will, under the residuary clause in the transferor's will; and

(III) If no taker is produced by the application of subparagraph (I) or (II) of this paragraph (b), to the transferor's heirs under part 5 of this article.

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(c) (Reserved)

(d) The intended use of the principal or income can be enforced by an individual designated for that purpose in the trust instrument, by the person having custody of an animal for which care is provided by the trust instrument, by a remainder beneficiary, or, if none, by an individual appointed by a court upon application to it by an individual.

(e) All trusts created under this section shall be registered and all trustees shall be subject to the laws of this state applying to trusts and trustees.

(f) (Reserved)

(g) If no trustee is designated or no designated trustee is willing or able to serve, a court shall name a trustee. A court may order the transfer of the property to another trustee, if required to assure that the intended use is carried out and if no successor trustee is designated in the trust instrument or if no designated successor trustee agrees to serve or is able to serve. A court may also make such other orders and determinations as shall be advisable to carry out the intent of the transferor and the purpose of this section.

§ 15-5-408. Trust for care of an animal

Subject to this section and section 15-5-409.5, a trust for the care of designated domestic or pet animals and the animals' offspring in gestation is valid. For purposes of this section, the determination of the “animals' offspring in gestation” is made at the time the designated domestic or pet animals become present beneficiaries of the trust. Unless the trust instrument provides for an earlier termination, the trust terminates when no living animal is covered by the trust. A trust instrument must be liberally construed to bring the trust within this section, to presume against the merely precatory or honorary nature of its disposition, and to carry out the general intent of the settlor. Extrinsic evidence is admissible in determining the settlor's intent. Any trust pursuant to this section is an exception to any statutory or common law rule against perpetuities.

§ 15-5-409. Noncharitable trust without ascertainable beneficiary

Subject to section 15-5-409.5 and except as provided pursuant to sections 38-30-110 to 38-30- 112, if a trust is for a specific, lawful, noncharitable purpose or for lawful, noncharitable purposes to be selected by the trustee, and there is no definite or definitely ascertainable beneficiary designated, the trust may be performed by the trustee for twenty-one years but no longer, regardless of whether the terms of trust contemplate a longer duration.

§ 15-5-409.5. Additional provisions applicable to noncharitable trusts without ascertainable beneficiary and trusts for care of animal

(1) In addition to the provisions of sections 15-5-408 and 15-5-409, a trust covered by either of those sections is subject to the following provisions:

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(a) Except as expressly provided otherwise in the trust instrument, no portion of the principal or income may be converted to the use of the trustee, other than reasonable trustee fees and expenses of administration, or to any use other than for the trust's purposes or for the benefit of a covered animal or animals;

(b) Upon termination, the trustee shall transfer the unexpended trust property in the following order:

(I) As directed in the trust instrument;

(II) If the trust was created in a nonresiduary clause in the settlor's will or in a codicil to the settlor's will, under the residuary clause in the settlor's will; and

(III) If no taker is produced by the application of subsections (1)(b)(I) and (1)(b)(II) of this section, to the settlor's heirs pursuant to part 5 of article 11 of this title 15;

(c) (Reserved)

(d) The intended use of the principal or income can be enforced by an individual designated for that purpose in the trust instrument, by the person having custody of an animal for which care is provided by the trust instrument, by a remainder beneficiary, or, if none, by an individual appointed by a court upon application to it by an individual;

(e) All trusts created pursuant to this section may be registered, and all trustees are subject to the laws of this state applying to trusts and trustees; and

(f) (Reserved)

(g)(I) If no trustee is designated or no designated trustee is willing or able to serve, a court shall name a trustee. A court may order the transfer of the property to another trustee if required to ensure that the intended use is carried out and if:

(A) No successor trustee is designated in the trust instrument; or

(B) No designated successor trustee agrees to serve or is able to serve.

(II) A court may also make such other orders and determinations as shall be advisable to carry out the intent of the settlor and the purposes of sections 15-5-408 and 15-5-409.

§ 15-5-110. Others treated as qualified beneficiaries

(1) Whenever notice to qualified beneficiaries of a trust is required pursuant to this code, the trustee shall also give notice to any other beneficiary who has sent the trustee a request for notice.

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(2) A charitable organization expressly designated to receive distributions under the terms of a charitable trust has the rights of a qualified beneficiary pursuant to this code if the charitable organization, on the date the charitable organization's qualification is being determined:

(a) Is a distributee or permissible distributee of trust income or principal;

(b) Would be a distributee or permissible distributee of trust income or principal upon the termination of the interests of other distributees or permissible distributees then receiving or eligible to receive distributions; or

(c) Would be a distributee or permissible distributee of trust income or principal if the trust terminated on that date.

(3) A person appointed to enforce a trust created for the care of an animal or another noncharitable purpose as provided in section 15-5-408 or 15-5-409 has the rights of a qualified beneficiary pursuant to this code.

(4) The attorney general has the rights of a qualified beneficiary with respect to a charitable trust having its principal place of administration in this state.

§ 15-16-923. Trust for care of animal—definitions

(1) As used in this section, unless the context otherwise requires:

(a) “Animal trust” means a trust or an interest in a trust created to provide for the care of one or more animals.

(b) “Protector” means a person listed under section 15-11-901(3)(d) with authority to enforce the trust on behalf of the animal.

(2) The decanting power may be exercised over an animal trust that has a protector to the extent the trust could be decanted under this part 9 if each animal that benefits from the trust were an individual, if the protector consents in a signed record to the exercise of the power.

(3) A protector for an animal has the rights under this part 9 of a qualified beneficiary.

(4) Notwithstanding any other provision of this part 9, if a first trust is an animal trust, in an exercise of the decanting power, the second trust must provide that trust property may be applied only to its intended purpose for the period the first trust benefitted the animal.

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B. Idaho Code

§ 15-7-601. Purpose trusts

(1) A trust may be created for any purpose, charitable or noncharitable, under the terms of a trust agreement or will. A noncharitable trust so created is a purpose trust and shall exist to serve a purpose.

(2) A purpose trust does not need a beneficiary.

(3) A purpose trust shall be enforceable on the terms set forth in the trust agreement by the person named to enforce the trust; provided however, that the failure to name a person to enforce the trust shall not void the trust or otherwise cause it to be unenforceable.

(4) A person named to enforce a purpose trust may resign or be removed or replaced in accordance with the trust.

(5) If the person named to enforce the trust resigns, or is removed, or is unwilling or unable to act, and if no successor is named in accordance with the trust, the trustee shall forthwith apply to the court having jurisdiction of the purpose trust for directions or for a person to be appointed by the court to enforce the trust. The court having jurisdiction of the purpose trust shall be empowered to make an order appointing a person to enforce the trust on such terms as it sees fit and to designate how successors will be named.

(6) During any period of time when no person is named or acting to enforce a purpose trust, the court having jurisdiction of the purpose trust shall have the right to exercise all powers necessary to enforce the trust in order to serve the purpose for which it was created.

(7) Any interested person, as defined in section 15-1-201(24), Idaho Code, may bring an action under law or equity to enforce a purpose trust.

(8) Charitable trusts are not governed by this section.

(9) A purpose trust created prior to July 1, 2005, shall be valid and enforceable from the date of the trust's creation.

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C. Montana Code

72-38-408. Trust for care of animal

(1) A trust may be created to provide for the care of an animal alive during the settlor's lifetime. The trust terminates upon the death of the animal or, if the trust was created to provide for the care of more than one animal alive during the settlor's lifetime, upon the death of the last surviving animal.

(2) A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person is so appointed, by a person appointed by the court. A person having an interest in the welfare of the animal may request the court to appoint a person to enforce the trust or to remove a person appointed.

(3) Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use. Except as otherwise provided in the terms of the trust, property not required for the intended use must be distributed to the settlor, if then living, and otherwise to the settlor's successors in interest.

72-38-409. Noncharitable trust without ascertainable beneficiary

Except as otherwise provided in 72-38-408 or by another statute, the following rules apply:

(1) A trust may be created for a noncharitable purpose without a definite or definitely ascertainable beneficiary or for a noncharitable but otherwise valid purpose to be selected by the trustee. The trust may not be enforced for more than 21 years.

(2) A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person is so appointed, by a person appointed by the court.

(3) Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use. Except as otherwise provided in the terms of the trust, property not required for the intended use must be distributed to the settlor, if then living, and otherwise to the settlor's successors in interest.

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D. New Mexico Code

§ 46A-4-408. Trust for care of animal

A. A trust may be created to provide for the care of an animal alive during the settlor's lifetime. The trust terminates upon the death of the animal or, if the trust was created to provide for the care of more than one animal alive during the settlor's lifetime, upon the death of the last surviving animal.

B. A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person is so appointed, by a person appointed by the court. A person having an interest in the welfare of the animal may request the court to appoint a person to enforce the trust or to remove a person appointed.

C. Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use. Except as otherwise provided in the terms of the trust, property not required for the intended use must be distributed to the settlor, if then living, otherwise to the settlor's successors in interest.

§ 46A-4-409. Noncharitable trust without ascertainable beneficiary

Except as otherwise provided in Section 4-408 of the Uniform Trust Code or by another statute, the following rules apply:

A. a trust may be created for a noncharitable purpose without a definite or definitely ascertainable beneficiary or for a noncharitable but otherwise valid purpose to be selected by the trustee. The trust may not be enforced for more than twenty-one years;

B. a trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person is so appointed, by a person appointed by the court; and

C. property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use. Except as otherwise provided in the terms of the trust, property not required for the intended use must be distributed to the settlor, if then living, otherwise to the settlor's successors in interest.

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E. North Dakota Code

§ 59-12-08. (408) Trust for care of animal

1. A trust may be created to provide for the care of an animal alive during the settlor's lifetime. The trust terminates upon the death of the animal or, if the trust was created to provide for the care of more than one animal alive during the settlor's lifetime, upon the death of the last surviving animal.

2. A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person is so appointed, by a person appointed by the court. A person having an interest in the welfare of the animal may request the court to appoint a person to enforce the trust or to remove a person appointed.

3. Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use. Except as otherwise provided in the terms of the trust, property not required for the intended use must be distributed to the settlor, if then living, otherwise to the settlor's successors in interest.

§ 59-12-09. (409) Noncharitable trust without ascertainable beneficiary

Except as otherwise provided in section 59-12-08 or by another statute, the following rules apply:

1. A trust may be created for a noncharitable purpose without a definite or definitely ascertainable beneficiary or for a noncharitable but otherwise valid purpose to be selected by the trustee.

2. A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person is so appointed, by a person appointed by the court.

3. Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use. Except as otherwise provided in the terms of the trust, property not required for the intended use must be distributed to the settlor, if then living, otherwise to the settlor's successors in interest.

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F. South Dakota Code

55-1-20. Trusts for noncharitable purposes

Subdivisions 55-1-4(2) and 55-1-5(2) notwithstanding, a purpose trust may be performed pursuant to this section and §§ 55-1-21 to 55-1-22.6, inclusive, if the trust is for a lawful noncharitable purpose or purposes. Any property may form a part or all of the trust estate, including some, all, or an interest in some or all of the property that is the subject or purpose of a purpose trust. A governing instrument of such a trust shall be liberally construed in favor of its validity to presume against the merely precatory or honorary nature of the disposition and to carry out the trustor's intent. If necessary, extrinsic evidence is admissible to determine the trustor's intent. Neither the common law rule against perpetuities, nor any rule restricting the accumulation of income, nor any common law rule limiting the duration of noncharitable purpose trusts is in force in this state.

55-1-21. Trust for care of animal, care of other property, or other lawful noncharitable purpose

The following purpose trusts are valid:

(1) A trust for the care of a designated animal or animals;

(2) A trust for the care, maintenance, promotion, continuation, conservation, upkeep, protection, furtherance, or preservation of any other property; and

(3) A trust for any other lawful noncharitable purpose or purposes.

55-1-21.1. Termination of trust for care of animal Except as otherwise provided in the governing instrument, a trust described in subdivision 55-1- 21(1) terminates when no living animal is covered by the trust.

55-1-21.2. Judicial reduction of property transferred to trustee if trust corpus exceeds amount required for intended purposes

A court may reasonably reduce the amount of the property transferred to the trustee of a purpose trust if the court determines that the trust corpus substantially exceeds the amount required for the intended purposes. The court should consider allowing the trust to be administered for a reasonable period of time before undertaking a determination. The amount of the reduction, if any, passes as unexpended trust property, as set forth in § 55-1-21.8.

55-1-21.4. Enforcement of purpose of trust by enforcer

The purposes of a purpose trust may be enforced by an enforcer designated in the governing instrument and if no enforcer is acting pursuant to the terms of the governing instrument the court may appoint one or more enforcers and successor enforcers. No purpose trust may fail for want of an enforcer. An enforcer may petition for, consent to, waive, or object to any matter

47 – Myers & Simmons regarding a purpose trust with regard to the purpose of the trust which the enforcer represents or concerning the administration of the purpose trust. Enforcers are fiduciaries and, except as otherwise provided in the governing instrument, are entitled to reasonable compensation as determined by the trustee. An enforcer may also serve as a trust protector or a family advisor pursuant to chapter 55-1B. However, an enforcer may not serve as an enforcer while serving as a trustee or a distribution trust advisor of the same trust.

55-1-21.5. Removal of enforcer

Any trustee may petition the court for the removal of an enforcer. An enforcer may be removed if the court finds:

(1) The enforcer committed a serious breach of the purpose enforcer's responsibilities or is unfit or unwilling to serve;

(2) A significant and unjustified lack of cooperation or hostility between the enforcer and the trustee, trust protector, or trust advisor; or

(3) There has been a substantial change in circumstances and removal of the enforcer would best serve the purpose or purposes of the trust.

The governing instrument may provide additional procedures for the removal of an enforcer.

55-1-21.6. Discretion of trustee of purpose trust

Except as otherwise provided in the governing instrument, a trustee of a purpose trust is vested with full discretion in:

(1) Interpreting the purposes of the trust consistent with the terms of the governing instrument; and

(2) Applying, distributing, or expending principal and income to further the trust's purposes.

55-1-21.7. Judicial designation of trustee--Order to carry out intent of trustor and purpose of trust

If no trustee is designated or no designated trustee is willing or able to serve, a court shall name a trustee. A court may order the transfer of the property to another trustee if required to ensure that the intended purposes are carried out or if no successor trustee is designated in the governing instrument or no designated successor trustee agrees to serve or is able to serve. A court may also make such other orders and determinations as are advisable to carry out the intent of the trustor and the purpose of §§ 55-1-20 to 55-1-22.6, inclusive.

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55-1-21.8. Distribution of property upon termination of purpose of trust

Upon termination of a purpose trust, the trustee shall distribute any remaining trust property as directed in the governing instrument. Only in the event that the governing instrument is silent shall the trustee, upon termination of a purpose trust, distribute any remaining trust property as follows:

(1) If the trust was created in a nonresiduary clause in a testator's will and the will fails to direct the distribution of unexpended trust property, then under the residuary clause of the testator's will, and for the purposes of § 29A-2-707, the residuary clause is treated as creating a future interest under the terms of a trust; and

(2) Otherwise, to the trustor's heirs under § 29A-2-711.

55-1-21.9. Filings, reports, accounting, separation of funds, appointment, and registration of purpose trust not required

Except as ordered by the court or required by the governing instrument, no filings, reports, periodic accounting, separate maintenance of funds, appointment, or registration of a purpose trust are required.

55-1-21.10. Trustee may not use principal and income other than for trust's purposes

Except as expressly provided otherwise in the trust instrument, no portion of the principal or income may be converted to the use of the trustee or to any use other than for the trust's purposes or the benefit of a covered animal.

55-1-22. Hybrid purpose trusts valid

A hybrid purpose trust which meets the description of a purpose trust in §§ 55-1-20 to 55-1- 21.10, inclusive, also includes one or more beneficiaries is valid and may be performed.

55-1-22.1. Separate shares for beneficiaries and purposes to be maintained in hybrid purpose trust

In a hybrid purpose trust when the interests of the beneficiaries and purposes are concurrent, the trustee shall maintain not less than two separate shares, one for the beneficiaries; and a second for the purposes, and the trustee may be liable to the beneficiaries for the actual damages caused thereby, if any, for failing to do so.

55-1-22.2. Beneficiaries’ share of a hybrid purpose trust

The beneficiaries' share of a hybrid purpose trust is governed by §§ 43-5-8 and 43-6-7.

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55-1-22.3. Spendthrift provision in hybrid purpose trust--Qualified dispositions in trust

A hybrid purpose trust may:

(1) Contain a spendthrift provision; and

(2) Also qualify as a trust described in § 55-16-2.

55-1-22.4. Application of §§ 55-1-21 to 55-1-21.9 to hybrid purpose trust--Exceptions

The provisions of §§ 55-1-21 to 55-1-21.9, inclusive, apply to a hybrid purpose trust except that:

(1) Under § 55-1-21.1, except as otherwise provided in the governing instrument, a trust as described in subdivision 55-1-21(1) terminates when no living animal is covered by the trust unless the trust may continue for the benefit of the beneficiaries; and

(2) Under § 55-1-21.2, a court has no power to reduce the amount of trust property intended for or allocated to any beneficiaries or any charitable purposes.

55-1-22.5. Discretion of trustee of hybrid purpose trust

Except as otherwise provided in the governing instrument, a trustee of a hybrid purpose trust is vested with full discretion in administering the trust and considering the best interests of the beneficiaries and the purposes of the trust.

55-1-22.6. Enforcer of hybrid purpose trust

In addition to § 55-1-21.4, an enforcer may also not be a beneficiary of a hybrid purpose trust.

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G. Texas Code

§ 112.037. Trust for Care of Animal

(a) A trust may be created to provide for the care of an animal alive during the settlor's lifetime.

The trust terminates on the death of the animal or, if the trust is created to provide for the care of more than one animal alive during the settlor's lifetime, on the death of the last surviving animal.

(b) A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if a person is not appointed in the terms of the trust, by a person appointed by the court. A person having an interest in the welfare of an animal that is the subject of a trust authorized by this section may request the court to appoint a person to enforce the trust or to remove a person appointed to enforce the trust.

(c) Except as provided by Subsections (d) and (e), property of a trust authorized by this section may be applied only to the property's intended use under the trust.

(d) Property of a trust authorized by this section may be applied to a use other than the property's intended use under the trust to the extent the court determines that the value of the trust property exceeds the amount required for the intended use.

(e) Except as otherwise provided by the terms of the trust, property not required for the trust's intended use must be distributed to:

(1) if the settlor is living at the time the trust property is distributed, the settlor; or

(2) if the settlor is not living at the time the trust property is distributed:

(A) if the settlor has a will, beneficiaries under the settlor's will; or

(B) in the absence of an effective provision in a will, the settlor's heirs.

(f) For purposes of Section 112.036, the lives in being used to determine the maximum duration of a trust authorized by this section are:

(1) the individual beneficiaries of the trust;

(2) the individuals named in the instrument creating the trust; and

(3) if the settlor or settlors are living at the time the trust becomes irrevocable, the settlor or settlors of the trust or, if the settlor or settlors are not living at the time the trust becomes irrevocable, the individuals who would inherit the settlor or settlors' property under the law of this state had the settlor or settlors died intestate at the time the trust becomes irrevocable.

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H. Utah Code

§ 75-7-408. Trust for care of animal

A trust may be created to provide for the care of a pet or animal as provided in Section 75-2- 1001.

§ 75-7-409. Noncharitable trust without ascertainable beneficiary

A trust may be created for a noncharitable purpose without a definite or definitely ascertainable beneficiary or for a noncharitable but otherwise valid purpose to be selected by the trustee as provided in Section 75-2-1001.

§ 75-2-1001. Honorary trusts--Trusts for pets

(1) Subject to Subsection (3), if a trust is for a specific lawful noncharitable purpose or for a lawful noncharitable purpose to be selected by the trustee and there is no definite or definitely ascertainable beneficiary designated, the trust may be performed by the trustee for 21 years but no longer whether or not the terms of the trust contemplate a longer duration.

(2) Subject to this Subsection (2) and Subsection (3), a trust for the care of a designated domestic or pet animal is valid. The trust terminates when no living animal is covered by the trust. A governing instrument shall be liberally construed to bring the transfer within this subsection, to presume against the merely precatory or honorary nature of the disposition, and to carry out the general intent of the transferor. Extrinsic evidence is admissible in determining the transferor's intent.

(3) In addition to the provisions of Subsection (1) or (2), a trust covered by either of those subsections is subject to the following provisions:

(a) Except as expressly provided otherwise in the trust instrument, no portion of the principal or income may be converted to the use of the trustee or to any use other than for the trust's purposes or for the benefit of a covered animal.

(b) Upon termination, the trustee shall transfer the unexpended trust property in the following order:

(i) as directed in the trust instrument;

(ii) if the trust was created in a nonresiduary clause in the transferor's will or in a codicil to the transferor's will, under the residuary clause in the transferor's will; and

(iii) if no taker is produced by the application of Subsection (3)(b)(i) or (ii), to the transferor's heirs under Section 75-2-711.

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(c) For the purposes of Section 75-2-707, the residuary clause is treated as creating a future interest under the terms of a trust.

(d) The intended use of the principal or income can be enforced by an individual designated for that purpose in the trust instrument or, if none, by an individual appointed by a court upon application to it by an individual.

(e) Except as ordered by the court or required by the trust instrument, no filing, report, registration, periodic accounting, separate maintenance of funds, appointment, or fee is required by reason of the existence of the fiduciary relationship of the trustee.

(f) A court may reduce the amount of the property transferred, if it determines that that amount substantially exceeds the amount required for the intended use. The amount of the reduction, if any, passes as unexpended trust property under Subsection (3)(b).

(g) If no trustee is designated or no designated trustee is willing or able to serve, a court shall name a trustee. A court may order the transfer of the property to another trustee, if required to assure that the intended use is carried out and if no successor trustee is designated in the trust instrument or if no designated successor trustee agrees to serve or is able to serve. A court may also make such other orders and determinations as shall be advisable to carry out the intent of the transferor and the purpose of this section.

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I. Wyoming Code

§ 4-10-409. Trust for care of animal

(a) A trust may be created to provide for the care of an animal alive during the settlor's lifetime. The trust terminates upon the death of the animal or, if the trust was created to provide for the care of more than one (1) animal alive during the settlor's lifetime, upon the death of the last surviving animal.

(b) A trust authorized by this section may be enforced by a person appointed in the terms of the trust, trust advisor, trust protector or, if no person is so appointed, by a person appointed by the court. A person having an interest in the welfare of the animal may request the court to appoint a person to enforce the trust or to remove a person appointed.

(c) Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use. Except as otherwise provided in the terms of the trust, property not required for the intended use shall be distributed to the settlor, if then living, otherwise to the settlor's successors in interest.

§ 4-10-410. Noncharitable trust without ascertainable beneficiary

(a) Except as otherwise provided in W.S. 4-10-409 or by another statute, the following rules apply:

(i) A trust may be created for a noncharitable purpose without a definite or definitely ascertainable beneficiary or for a noncharitable but otherwise valid purpose to be selected by the trustee;

(ii) A trust authorized by this section may be enforced by a trust advisor, trust protector, person appointed in the terms of the trust or, if no person is so appointed, by a person appointed by the court;

(iii) Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use. Except as otherwise provided in the terms of the trust, property not required for the intended use shall be distributed to the settlor, if then living, otherwise to the settlor's successors in interest;

(iv) No common law rule limiting the duration of noncharitable purpose trusts is in force in this state.

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J. Uniform Trust Code §§ 408 and 409

§ 408. Trust for Care of Animal.

(a) A trust may be created to provide for the care of an animal alive during the settlor’s lifetime. The trust terminates upon the death of the animal or, if the trust was created to provide for the care of more than one animal alive during the settlor’s lifetime, upon the death of the last surviving animal.

(b) A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person is so appointed, by a person appointed by the court. A person having an interest in the welfare of the animal may request the court to appoint a person to enforce the trust or to remove a person appointed.

(c) Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use. Except as otherwise provided in the terms of the trust, property not required for the intended use must be distributed to the settlor, if then living, otherwise to the settlor’s successors in interest.

§ 409. Noncharitable Trust Without Ascertainable Beneficiary.

Except as otherwise provided in Section 408 or by another statute, the following rules apply:

(1) A trust may be created for a noncharitable purpose without a definite or definitely ascertainable beneficiary or for a noncharitable but otherwise valid purpose to be selected by the trustee. The trust may not be enforced for more than [21] years.

(2) A trust authorized by this section may be enforced by a person appointed in the terms of the trust or, if no person is so appointed, by a person appointed by the court.

(3) Property of a trust authorized by this section may be applied only to its intended use, except to the extent the court determines that the value of the trust property exceeds the amount required for the intended use. Except as otherwise provided in the terms of the trust, property not required for the intended use must be distributed to the settlor, if then living, otherwise to the settlor’s successors in interest.

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K. Uniform Probate Code § 2-907

§ 2-907. Honorary Trusts; Trusts for Pets.

(a) [Honorary Trust.] Subject to subsection (c), if (i) a trust is for a specific lawful noncharitable purpose or for lawful noncharitable purposes to be selected by the trustee and (ii) there is no definite or definitely ascertainable beneficiary designated, the trust may be performed by the trustee for [21] years but no longer, whether or not the terms of the trust contemplate a longer duration.

(b) [Trust for Pets.] Subject to this subsection and subsection (c), a trust for the care of a designated domestic or pet animal is valid. The trust terminates when no living animal is covered by the trust. A governing instrument must be liberally construed to bring the transfer within this subsection, to presume against the merely precatory or honorary nature of the disposition, and to carry out the general intent of the transferor. Extrinsic evidence is admissible in determining the transferor's intent.

(c) [Additional Provisions Applicable to Honorary Trusts and Trusts for Pets.] In addition to the provisions of subsection (a) or (b), a trust covered by either of those subsections is subject to the following provisions:

(1) Except as expressly provided otherwise in the trust instrument, no portion of the principal or income may be converted to the use of the trustee or to any use other than for the trust's purposes or for the benefit of a covered animal.

(2) Upon termination, the trustee shall transfer the unexpended trust property in the following order:

(A) as directed in the trust instrument;

(B) if the trust was created in a nonresiduary clause in the transferor's will or in a codicil to the transferor's will, under the residuary clause in the transferor's will; and

(C) if no taker is produced by the application of subparagraph (A) or (B), to the transferor's heirs under Section 2-711.

(3) For the purposes of Section 2-707, the residuary clause is treated as creating a future interest under the terms of a trust.

(4) The intended use of the principal or income can be enforced by an individual designated for that purpose in the trust instrument or, if none, by an individual appointed by a court upon application to it by an individual.

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(5) Except as ordered by the court or required by the trust instrument, no filing, report, registration, periodic accounting, separate maintenance of funds, appointment, or fee is required by reason of the existence of the fiduciary relationship of the trustee.

(6) A court may reduce the amount of the property transferred, if it determines that that amount substantially exceeds the amount required for the intended use. The amount of the reduction, if any, passes as unexpended trust property under subsection (c)(2).

(7) If no trustee is designated or no designated trustee is willing or able to serve, a court shall name a trustee. A court may order the transfer of the property to another trustee, if required to assure that the intended use is carried out and if no successor trustee is designated in the trust instrument or if no designated successor trustee agrees to serve or is able to serve. A court may also make such other orders and determinations as shall be advisable to carry out the intent of the transferor and the purpose of this section.]

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