uniform trust code - Kansas Judicial Branch

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Subsection (b)(1) states the main rule. Unless the terms of the trust expressly indicate that
the rule in this subsection is not to apply, the power to make discretionary distributions to a
beneficiary-trustee is automatically limited by the requisite ascertainable standard necessary to avoid
inclusion of the trust in the trustee’s gross estate or result in a taxable gift upon the trustee’s release
or exercise of the power. Trusts of which the trustee-beneficiary is also a settlor are not subject to
this subsection. In such a case, limiting the discretion of a settlor-trustee to an ascertainable standard
would not be sufficient to avoid inclusion of the trust in the settlor’s gross estate. See generally John
J. Regan, Rebecca C. Morgan & David M. English, Tax, Estate and Financial Planning for the
Elderly § 17.07[2][h]. Furthermore, the inadvertent inclusion of a trust in a settlor-trustee’s gross
estate is a far less frequent and better understood occurrence than is the inadvertent inclusion of the
trust in the estate of a nonsettlor trustee-beneficiary.
Subsection (b)(2) addresses a common trap, the trustee who is not a beneficiary but who has
power to make discretionary distributions to those to whom the trustee owes a legal obligation of
support. Discretion to make distributions to those to whom the trustee owes a legal obligation of
support, such as to the trustee’s minor children, results in inclusion of the trust in the trustee’s gross
estate even if the power is limited by an ascertainable standard. The applicable regulation provides
that the ascertainable standard exception applies only to distributions for the benefit of the decedent,
not to distributions to those to whom the decedent owes a legal obligation of support. See Treas.
Reg. § 20.2041-1(c)(2).
Subsection (c) deals with cotrustees and adopts the common planning technique of granting
the broader discretion only to the independent trustee. Cotrustees who are beneficiaries of the trust
or who have a legal obligation to support a beneficiary may exercise the power only as limited by
subsection (b). If all trustees are so limited, the court may appoint a special fiduciary to make a
decision as to whether a broader exercise is appropriate.
Subsection (d) excludes certain trusts from the operation of this section. Trusts qualifying
for the marital deduction will be includable in the surviving spouse’s gross estate regardless of
whether this section applies. Consequently, if the spouse is acting as trustee, there is no need to
limit the power of the spouse-trustee to make discretionary distributions for the spouse’s benefit.
Similar reasoning applies to the revocable trust, which, because of the settlor’s power to revoke, is
automatically includable in the settlor’s gross estate even if the settlor is not named as a beneficiary.
QTIP marital trusts are subject to this section, however. QTIP trusts qualify for the marital
deduction only if so elected on the federal estate tax return. Excluding a QTIP for which an election
has been made from the operation of this section would allow the terms of the trust to be modified
after the settlor’s death. By not making the QTIP election, an otherwise unascertainable standard
would be limited. By making the QTIP election, the trustee’s discretion would not be curtailed.
This ability to modify a trust depending on elections made on the federal estate tax return could itself
constitute a taxable power of appointment resulting in inclusion of the trust in the surviving spouse’s
gross estate.
The exclusion of the Section 2503(c) minors trust is necessary to avoid loss of gift tax
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