Bill Text: MI SB0980 | 2011-2012 | 96th Legislature | Engrossed
Bill Title: Probate; trusts; powers of appointment; revise. Amends secs. 2, 5, 12, 14 & 20 of 1967 PA 224 (MCL 556.112 et seq.) & adds sec. 5a.
Spectrum: Partisan Bill (Republican 2-0)
Status: (Passed) 2012-12-31 - Assigned Pa 0485'12 With Immediate Effect [SB0980 Detail]
Download: Michigan-2011-SB0980-Engrossed.html
SB-0980, As Passed House, December 12, 2012
SENATE BILL No. 980
February 23, 2012, Introduced by Senators JONES and SCHUITMAKER and referred to the Committee on Judiciary.
A bill to amend 1967 PA 224, entitled
"Powers of appointment act of 1967,"
by amending sections 2, 5, 12, 14, and 20 (MCL 556.112, 556.115,
556.122, 556.124, and 556.130), section 20 as amended by 2000 PA
68, and by adding section 5a.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 2. As used in this act:
(a) "Property" means any legal or equitable interest in real
or personal property, including choses in action.
(b) "Power" means a power of appointment over property.
(c) "Power of appointment" means a power created or reserved
by
a person having property subject to his or her disposition which
that enables the donee of the power to designate, within any limits
that may be prescribed, the transferees of the property or the
shares
or the interests in which it shall be received. ; but it The
term power of appointment may include a power of amendment or
revocation,
but does not include a power of sale , or a
power of
attorney. or
a power of amendment or revocation.
(d)
"Donor" means the a
person who creates or reserves the a
power.
(e)
"Donee" means the a
person to whom the a power
is granted
or reserved.
(f)
"Appointee" means the a
person to whom an a beneficial
interest in property is designated or transferred by exercise of
the
a power
or, if a power is exercised in favor of a trustee, a
person for whose benefit property has been designated or
transferred in trust.
(g)
"Creating instrument" means the a deed, will, trust
agreement, or
other writing or document which that
creates or
reserves
the a power.
(h)
"General power" means a power, exercisable in favor of the
permissible appointees of which include the donee, his or her
estate, his or her creditors, or the creditors of his or her
estate. ,
whether or not it is exercisable in favor of others. A
The
term general power to appoint to any
person or a power which
includes a power that is not expressly restricted as to appointees.
is
a general power. A power may be
general as to some property and
special as to other property.
(i)
"Special power" means a power, exercisable only in favor
of
1 or more persons not including the
permissible appointees of
which do not include the donee, his or her estate, his or her
creditors, or the creditors of his or her estate.
(j) "Gift in default" means a transfer to a person designated
in the creating instrument as the transferee of property if a power
is not exercised or is released.
(k) "Release" means renunciation, relinquishment, surrender,
refusal to accept, and any other form of release.
(l) A power of appointment is "presently" exercisable whenever
the creating instrument does not manifest an intent that its
exercise shall be solely by will or otherwise postponed.
(m) "EPIC" means the estates and protected individuals code,
1998 PA 386, MCL 700.1101 to 700.8206.
(n) "MTC" means article VII of EPIC, MCL 700.7101 to 700.7913.
(o) "Trust" means that term as defined in section 2901 of
EPIC, MCL 700.2901.
(p) "Irrevocable trust" means a trust over which no person
holds a power of revocation. A power holder's lack of capacity to
exercise a power of revocation negates the power of revocation
unless an agent of the power holder under a durable power of
attorney, a conservator of the power holder, or a plenary guardian
of the power holder is serving and the agent, conservator, or
guardian is authorized to exercise the power of revocation.
(q) "Trustee" means a fiduciary or set of co-fiduciaries as
described in section 2901(2)(j) of EPIC, MCL 700.2901.
Sec.
5. (1) A power can may be exercised by any donee capable
of transferring the interest in property to which the power
relates.
(2)
A power can may be exercised only by a written instrument
which
that would be sufficient to pass the interest intended to
be
appointed if the donee were the owner of the interest. Unless
otherwise
contemplated in the creating instrument, a power can may
be
exercised only by a written instrument which that complies
with
the requirements, if any, of the creating instrument as to the
manner, time, and conditions of the exercise of the power, except
that a power exercisable only by deed is also exercisable by a
written will executed as required by law.
(3) If the donor has authorized the power to be exercised by
an instrument not sufficient in law to pass the appointive
interest, the power is not void, but may be exercised by an
instrument conforming to subsection (2).
(4) If consent of the donor or of any other person is required
for the exercise of a power, the consent must be expressed in the
instrument exercising the power or in a separate written
instrument,
signed in either case by the persons person whose
consent is required. If any person whose consent is required dies
or becomes legally incapable of consenting, the power may be
exercised by the donee without the consent of that person unless
the creating instrument, construed with regard to surrounding
circumstances, manifests a contrary intent.
(5) When a power is vested in 2 or more persons, all must
unite in its exercise; but if 1 or more of the donees dies, becomes
incapable of exercising the power, or releases the power, the power
may be exercised by the others, unless the creating instrument,
construed with regard to surrounding circumstances, manifests a
contrary intent.
(6) When a power is vested in 2 or more trustees, the
trustees' coordination in the exercise of the power is governed by
sections 7703 and 7815(3) of the MTC, MCL 700.7703 and 700.7815,
unless the trust instrument manifests a contrary intent.
Sec. 5a. (1) A trustee with a presently exercisable
discretionary power to make distributions of income or principal of
an irrevocable trust to or for the benefit of 1 or more
beneficiaries of the trust may, unless the terms of the first trust
expressly provide otherwise, exercise the power by appointing all
or part of the property subject to the power in favor of the
trustee of a second trust, provided that all of the following
conditions are satisfied:
(a) Except as provided in subsection (2), the beneficiaries of
the second trust include only permissible appointees, even if fewer
than all permissible appointees, of the trustee's discretionary
distribution power as of the time the power is exercised.
(b) For a trust, contributions to which have been excluded
from gift tax under section 2503(c) of the internal revenue code,
26 USC 2503(c), the trust instrument of the second trust provides
that the beneficiary's remainder interest will pass or be payable
no later than the date on which the interest would have passed or
been payable under the terms of the first trust instrument.
(c) The exercise of the discretionary power does not reduce
the income, annuity, or unitrust interest or general power of
appointment of a beneficiary of a trust that was intended to
qualify for a marital or charitable deduction under federal or
state law by virtue of that beneficiary's interest in the trust,
whether or not that deduction is actually taken.
(d) The exercise of the discretionary power does not reduce a
presently exercisable general power to withdraw a specified
percentage or amount of trust property in a trust beneficiary who
is the only trust beneficiary to or for the benefit of whom the
trustee has the power to make discretionary distributions.
(2) The second trust instrument may provide 1 or more of the
following:
(a) A special or general power of appointment, including a
power to appoint trust property to persons who are not
beneficiaries of the first trust, to 1 or more of the beneficiaries
of the second trust.
(b) That at a time or upon the occurrence of an event
specified in the second trust instrument, the remaining trust
assets shall thereafter be held for the benefit of beneficiaries
who are or who would have been beneficiaries of the first trust on
terms and conditions substantially identical, with respect to the
interests of those beneficiaries, to the terms and conditions of
the first trust.
(c) That assets of the first trust discovered after exercise
of the power described in subsection (1) shall be property of the
first trust if that trust continues in existence after exercise of
the power, or that assets of the first trust discovered after
exercise of the power shall be property of the second trust if the
first trust terminates upon exercise of the power.
(d) For indemnification of the trustee of the first trust,
except as limited by section 7908 of the MTC, MCL 700.7908.
(3) For purposes of this section, all of the following apply:
(a) A discretionary power to make distributions to a given
trust beneficiary is presently exercisable when the timeliness of a
present distribution to or for the benefit of that beneficiary
depends, under the terms of the trust instrument, only on the
trustee's judgment as to what is in the beneficiary's best
interests.
(b) A power to make distributions is not discretionary if it
is limited by a definite and ascertainable standard, but
instructions for the trustee to consider such things as a
beneficiary's best interests, welfare, comfort, happiness, or
general development do not in themselves constitute definite and
ascertainable standards, regardless of whether the trustee is also
instructed or permitted to consider resources outside the trust
that may be available to the beneficiary.
(c) A general power annually to withdraw a specified
percentage or amount of trust property is presently exercisable
with respect to any year for which the beneficiary who holds the
power is entitled, under the terms of the governing instrument, to
exercise the power, and each subsequent year for which the
beneficiary will be entitled to exercise the power assuming only
the beneficiary's survival and the continuation of the trust. For
example, if a trust provides that, beginning in the fifth year
after the trust becomes irrevocable, the beneficiary shall have the
power for the remainder of his or her life annually to withdraw
$5,000.00 or 5% of the value of the trust principal, whichever is
greater, then, in the fourth year after the trust becomes
irrevocable, the beneficiary's power to make annual withdrawals is
not presently exercisable; however, in the fifth year after the
trust becomes irrevocable, the beneficiary's power is presently
exercisable, for purposes of this section, with respect to the
fifth year and each subsequent year during the beneficiary's life.
(4) The trustee of the second trust may be the trustee of the
first trust, the second trust may be a trust under the governing
instrument of the first trust or another governing instrument, the
governing instrument may be one created by the trustee of the first
trust, and the governing instrument may be the instrument that
exercises the power described in subsection (1).
(5) A second trust shall be treated as both of the following:
(a) A new irrevocable trust for purposes of the notice
requirements of section 7814(2)(c) of the MTC, MCL 700.7814.
(b) A continuation of the first trust for purposes of the
notice requirements of section 7814(2)(d) of the MTC, MCL 700.7814,
and the charge of any fee or commission on the transfer of assets
from the first trust to the second trust shall be treated as a
change in the rate of the trustee's compensation.
(6) A discretionary power under subsection (1) is a power of
appointment and a discretionary power for purposes of section 7815
of the MTC, MCL 700.7815.
(7) This section shall not abridge the right of a trustee who
has a power to distribute trust property in further trust under
this act, any other statute, or the common law. This section shall
not abridge the right of a trustee who has a power to amend or
revoke a trust.
(8) It is the intent of the legislature that this section be a
codification of the common law of this state in effect before the
effective date of the amendatory act that added this section.
(9) As used in this section, "first trust" means an
irrevocable trust over which a trustee has a presently exercisable
discretionary power to make distributions that is exercised as
described in subsection (1).
Sec. 12. If the donee of a special power fails to exercise the
power
effectively the power, or
totally releases a releasable
special
power, the interests which that
might have been appointed
under the power pass as follows:
(a) If the creating instrument contains an express gift in
default, then in accordance with the terms of the gift.
(b)
If Except as provided in
subdivision (d), if the creating
instrument contains no express gift in default and does not clearly
indicate that the permissible appointees are to take only if the
donee exercises the power, then equally to the permissible
appointees living at the time of the termination or release of the
power, but if the power is to appoint among a class, such as
"relatives", "issue" or "heirs", then to those persons in the
closest degree of kinship or representing others in the same degree
of kinship who would have taken had there been an express
appointment per stirpes to the described class effective as of the
termination or release of the power.
(c)
If Except as provided in
subdivision (d), if the creating
instrument contains no express gift in default and clearly
indicates that the permissible appointees are to take only if the
donee exercises the power, then by reversion to the donor or his or
her
estate. ; but if If the
creating instrument expressly states
that there is no reversion in the donor, then any language in the
creating instrument indicating or stating that the permissible
appointees are to take only if the donee exercises the power is to
be
disregarded and the interests shall pass in accordance with
under subdivision (b).
(d) If the power was created by the exercise of a
discretionary power described in section 5a, then according to the
provisions that governed the assets subject to the power under the
first trust described in section 5a(1).
Sec. 14. (1) The period during which the vesting of a future
interest may be suspended or postponed by an instrument exercising
a power of appointment begins on the effective date of the
instrument
of exercise in the case of an
instrument exercising a
general
power presently exercisable, on the effective date of the
instrument
of exercise; and in all other
situations, at the time of
the creation of the power.
(2) In determining the period during which the vesting of a
future interest may be suspended or postponed by the exercise of a
power of appointment, if a second power is created by the exercise
of a first power, and the first power is a presently exercisable
general power, the second power is considered to have been created
on the effective date of the instrument of exercise. In all other
situations, the second power is considered to have been created at
the time of the creation of the first power.
(3) The length of the period, whether finite or infinite,
during which the vesting of a future interest may be suspended or
postponed by exercise of a power is determined, from the beginning
date specified in subsection (1), under the personal property trust
perpetuities act, 2008 PA 148, MCL 554.91 to 554.94, or section
5(2) of the uniform statutory rule against perpetuities, 1988 PA
418, MCL 554.75, to the extent that all of the following conditions
are satisfied:
(a) An instrument exercises a power of appointment so as to
subject property to or to create a trust that is either revocable
on or created after May 28, 2008.
(b) The appointive property is personal property.
(c) The trust is not a special appointee trust.
(4) As used in this section:
(a) "First power" means a power of appointment, an exercise of
which has created another power of appointment.
(b) "Second power" means a power of appointment created by the
exercise of a first power.
(c) "Special appointee trust" means that term as defined in
section 4 of the personal property trust perpetuities act, 2008 PA
148, MCL 554.94.
Sec. 20. If an attempted testamentary exercise of a power is
ineffective because of an appointee's death before the effective
date
of the exercise, the appointment does not lapse and section
2603
of the estates and protected individuals code, 1998 PA 286
EPIC, MCL 700.2603, applies.
