§554G-5  Trust instrument.  (a)  A trust instrument shall be irrevocable and shall expressly incorporate the laws of this State governing the validity, construction, and administration of the trust.

     (b)  The trustee, in its discretion, may terminate any trust if and when its fair market value has declined to the extent that would make it uneconomical, imprudent, or unwise to continue to retain the trust, and shall pay and distribute the trust to the persons entitled to mandatory or discretionary income distributions as the trustee in the trustee's absolute discretion shall decide.

     (c)  A trust instrument shall not be deemed revocable on account of the inclusion of:

     (1)  A transferor's power to veto a distribution from the trust;

     (2)  A power of appointment other than a power to appoint to the transferor, the transferor's creditors, the transferor's estate, or the creditors of the transferor's estate that may be exercised by will or other written instrument of the transferor effective only upon the transferor's death;

     (3)  The transferor's potential or actual receipt of income, including rights to income retained in the trust instrument;

     (4)  The transferor's annual receipt of a percentage not to exceed five per cent of the initial value of the trust assets or its value determined from time to time pursuant to the trust instrument or of a fixed amount that on an annual basis does not exceed five per cent of the initial value of the trust assets;

     (5)  The transferor's potential or actual receipt or use of the trust's principal due to the trustee acting:

          (A)  In the trustee's discretion;

          (B)  Pursuant to a provision in the trust instrument that governs the distribution of principal and that does not confer upon the transferor a substantially unfettered right to the receipt or use of the principal; or

          (C)  At the direction of an advisor described in section 554G-4.5 who is acting:

              (i)  In the advisor's discretion;

             (ii)  Pursuant to a provision in the trust instrument that governs the distribution of principal and does not confer upon the transferor a substantially unfettered right to the receipt or use of the principal; or

            (iii)  Pursuant to the transferor's determination under section 554G-4.5(c) of a dispute, deadlock, or difference of opinion in favor of the advisor;

          provided that for purposes of this paragraph, a trustee is presumed to have discretion with respect to the distribution of principal unless that discretion is expressly denied to the trustee by the terms of the trust instrument;

     (6)  The transferor's right to remove a trustee or advisor and to appoint a new trustee or advisor;

     (7)  The transferor's potential or actual receipt of income or principal to pay income taxes due on income of the trust if the trust instrument includes a provision allowing or directing the use of trust funds to pay income taxes due, or if the trustee acts in the trustee's discretion to allow payment of income taxes due on the trust income;

     (8)  A trustee's authority pursuant to discretion, direction, or the transferor's exercise of a testamentary power of appointment to pay all or any part of the transferor's debts outstanding at the time of the transferor's death, the expenses of administering the transferor's estate, or any estate or inheritance tax imposed on or with respect to the transferor's estate;

     (9)  The transferor's potential or actual receipt of income or principal from a charitable remainder unitrust or charitable remainder annuity trust, as those terms are defined in section 664 of the Internal Revenue Code and any successor provision; and the transferor's right, at any time and from time to time by written instrument delivered to the trustee, to release the transferor's retained interest in the trust, in whole or in part, in favor of one or more charitable organizations with a succeeding beneficial interest in the trust;

    (10)  The transferor's potential or actual receipt of income or principal from a grantor-retained annuity trust or grantor-retained unitrust, pursuant to title 26 Code of Federal Regulations section 25.2702-3 and any successor provision, or the transferor's receipt each year of a percentage specified in the governing instrument of the initial value of the trust assets or their value determined from time to time pursuant to the governing instrument; provided that the percentage received does not exceed five per cent; or

    (11)  The transferor's potential or actual use of real property held under a qualified personal residence trust, as described in title 26 Code of Federal Regulations section 25.2702-5(c) and any successor provision, or the transferor's possession and enjoyment of a qualified annuity interest, as described in title 26 Code of Federal Regulations section 25.2702-5(c)(8) and any successor provision thereto.

     (d)  A trust instrument may provide that the interest of a beneficiary of the trust, including a beneficiary who is the transferor of the trust, may not be transferred, assigned, pledged, or mortgaged, whether voluntarily or involuntarily, before the trustee actually distributes the property or income to the beneficiary.  Any provision of this type contained in the trust instrument shall be deemed to be a restriction on the transfer of the transferor's beneficial interest in the trust that is enforceable under applicable nonbankruptcy law within the meaning of title 11 United States Code section 541(c)(2) of the Bankruptcy Code or any successor provision.

     (e)  If a trustee of a trust existing prior to the enactment of this chapter proposes to make a permitted transfer, but the trust instrument does not contain a power of appointment that conforms to section 554G-5(c)(2), the trustee may deliver an irrevocable written election to have section 554G-5(c)(2) apply to the trust and the nonconforming powers of appointment shall be deemed modified to the extent necessary to conform with section 554G-5(c)(2).  The irrevocable written election shall include a description of the original transferor's powers of appointment as modified, and the original transferor's written consent to the modification.  Consent of the original transferor to a modification of powers of appointment shall not be considered to be a permitted transfer.

     (f)  If, in any action brought against a trustee of a trust that results from a permitted transfer, a court declines to apply the law of this State in determining the validity, construction, or administration of the trust or the effect of a spendthrift provision of the trust, the trustee, immediately upon the court's action and without the further order of any court, shall cease to be trustee of the trust and a successor trustee shall succeed as trustee in accordance with the terms of the trust instrument.  If the trust instrument does not provide for a successor trustee or does not provide for an advisor or protector with powers to appoint successor trustees, a Hawaii court of competent jurisdiction shall appoint a successor permitted trustee upon the application of any beneficiary of the trust under any terms and conditions that the court determines to be consistent with the purposes of the trust and with this chapter.  Upon the removal of a trustee pursuant to this section, the trustee who has been removed shall have no power or authority other than to convey the trust property to the successor trustee. [L 2010, c 182, pt of §2; am L 2011, c 161, §5]