REPORT TITLE:
Hawaii Trusts


DESCRIPTION:
Provides for establishment of a spendthrift trust with the
settlor as a beneficiary; requires local trustees and local
administration of Hawaii trusts.

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                                                        
THE SENATE                              S.B. NO.           634
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            
                                                             
________________________________________________________________
________________________________________________________________


                     A BILL FOR AN ACT

RELATING TO TRUSTS.



BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

 1      SECTION 1. The legislature finds that many trust settlors
 
 2 seek to establish trusts in off-shore jurisdictions that offer
 
 3 estate planning tools unavailable in their own jurisdictions,
 
 4 including the ability for settlors to divest assets from their
 
 5 estates and protect assets from possible future creditors, while
 
 6 maintaining a discretionary interest in the trust assets as a
 
 7 safeguard against unexpected future financial need.  Increased
 
 8 flexibility in Hawaii's trust laws will make Hawaii more
 
 9 attractive as an estate planning jurisdiction, with a resulting
 
10 benefit to trust-related businesses and increase to tourism from
 
11 visiting trust settlors and beneficiaries.
 
12      The purpose of this Act is to provide a trust settlor the
 
13 ability to create a trust with a spendthrift provision under
 
14 which the settlor is a beneficiary subject to the trustee's
 
15 discretion; to clarify the circumstances in which spendthrift and
 
16 other trusts may be challenged; and to require local trustees and
 
17 local administration of Hawaii trusts.
 
18      SECTION 2.  Chapter 560, Hawaii Revised Statutes, is amended
 
19 by adding a new part to Article VII to be appropriately
 
20 designated, and to read as follows:
 

 
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 1                      "PART .   HAWAII TRUSTS
 
 2      �560:7-    Definitions.  As used in this part,
 
 3      "Qualified person" means:
 
 4           (1)  An individual who, except for brief intervals,
 
 5                military service, attendance at an educational or
 
 6                training institution, or for absences for good
 
 7                cause shown, resides in this State, whose true and
 
 8                permanent home is in this State, who does not have
 
 9                a present intention of moving from this State, and
 
10                who has the intention of returning to this State
 
11                when away;
 
12           (2)  A trust company that is organized under article 8
 
13                of chapter 412 and has its principal place of
 
14                business in this State; or
 
15           (3)  A bank that is organized under article 5 of
 
16                chapter 412, or a national banking association
 
17                that is organized under 12 U.S.C. section 21-216d,
 
18                if the bank or national banking association
 
19                possesses and exercises trust powers and has its
 
20                principal place of business in this State.
 
21      "Spendthrift provision" means a term of a trust which
 
22 restrains the voluntary and involuntary transfer of a
 
23 beneficiary's interest. 
 

 
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 1      "State jurisdiction provision" means a provision that the
 
 2 laws of this State govern the validity, construction, and
 
 3 administration of a trust and that the trust is subject to the
 
 4 jurisdiction of this State.
 
 5      �560:7-   Spendthrift provision; exceptions. (a) A
 
 6 spendthrift provision is valid only if it provides for restraint
 
 7 of both voluntary and involuntary transfer of a beneficiary's
 
 8 interest.
 
 9      (b)  A trust may include a provision or provisions that:
 
10      (1)  The settlor is a beneficiary subject to a spendthrift
 
11           provision and has the right to receive a distribution
 
12           of income, corpus, or both in the discretion of a
 
13           person, including a trustee, other than the settlor;
 
14      (2)  The settlor has a testamentary special power of
 
15           appointment or similar power; or
 
16      (3)  The settlor has the power to veto a distribution from
 
17           the trust.
 
18      Inclusion in a trust of one or more of the provisions
 
19 contained in this subsection does not invalidate the trust or any
 
20 spendthrift provision contained in the trust.  No court shall
 
21 consider inclusion in a trust of one or more of the provisions
 
22 contained in this subsection as a factor in determining actual
 
23 intent to hinder, delay, or defraud any creditor of the settlor
 
24 under section 651C-4(a)(1).
 

 
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 1      (c)  A beneficiary may not transfer an interest in a trust
 
 2 protected by a valid spendthrift provision, and, except as
 
 3 otherwise provided in this section, a creditor or assignee of the
 
 4 beneficiary may not attach the interest or a distribution by the
 
 5 trustee, before its receipt by the beneficiary.
 
 6      (d)  Even if a trust contains a valid spendthrift provision,
 
 7 a beneficiary's child or current or former spouse may obtain, in
 
 8 an appropriate judicial proceeding, an order attaching present or
 
 9 future distributions to or for the benefit of the beneficiary.
 
10      (e)  A spendthrift provision is unenforceable against a
 
11 state or the United States to the extent a statute of the state
 
12 or federal law so provides.
 
13      �560:7-  Nonqualified persons serving as trustees.(a)  If
 
14 at least one qualified person serves as trustee of a trust whose
 
15 state jurisdiction provision is valid, effective, and conclusive
 
16 under section 560:7-201(c), then the following persons may also
 
17 serve as trustees even though they are not qualified persons:
 
18      (1)  Individuals who do not reside in Hawaii;
 
19      (2)  Trust companies that have their principal places of
 
20           business outside of Hawaii; and
 
21      (3)  Banks or national banking associations that have their
 
22           principal places of business outside of Hawaii or that
 
23           do not possess and exercise trust powers.
 

 
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 1      (b)  Notwithstanding other provisions of law to the
 
 2 contrary, a nonqualified person serving as trustee does not
 
 3 transact any business within this State for the purposes of
 
 4 section 634-35 solely by reason of serving as trustee of a trust
 
 5 whose state jurisdiction provision is valid, effective, and
 
 6 conclusive under section 560:7-201(c).
 
 7      �560:7-  Challenges to trusts.(a) Except as provided in
 
 8 chapter 651C, a trust that is covered by section 560:7-201(c) or
 
 9 that is otherwise governed by the laws of this State, or a
 
10 property transfer to a trust that is covered by section 560:7-
 
11 201(c) or that is otherwise governed by the laws of this State,
 
12 is not void, voidable, liable to be set aside, defective in any
 
13 fashion, or questionable as to the settlor's capacity, on the
 
14 grounds that the trust or transfer avoids or defeats a right,
 
15 claim, or interest conferred by law on a person by reason of a
 
16 personal or business relationship with the settlor or by way of a
 
17 marital or similar right.
 
18      (b)  If a trust or a property transfer to a trust is avoided
 
19 under section 651C-7, and if the court is satisfied that the
 
20 trustee has not acted in bad faith in accepting or administering
 
21 the property that is the subject of the trust:
 
22      (1)  The trustee has a first and paramount lien against the
 
23           property that is the subject of the trust in an amount
 

 
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 1           equal to the entire cost, including attorney fees,
 
 2           properly incurred by the trustee in a defense of the
 
 3           action or proceedings for avoidance of the trust or the
 
 4           property transfer;
 
 5      (2)  The trust or property transfer that is avoided is
 
 6           subject to the proper fees, costs, preexisting rights,
 
 7           claims, and interest of the trustee and of any
 
 8           predecessor trustee that has not acted in bad faith;
 
 9           and
 
10      (3)  The beneficiary, including the settlor, may retain a
 
11           distribution made by exercising a trust power or
 
12           discretion vested in the trustee of the trust, if the
 
13           power or discretion was properly exercised before the
 
14           commencement of the action or proceeding for avoidance
 
15           of the trust or property transfer."
 
16      SECTION 2.  Section 560:7-201, Hawaii Revised Statutes, is
 
17 amended to read as follows:
 
18      "�560:7-201  Court; jurisdiction of trusts.(a)  The court
 
19 has jurisdiction of proceedings initiated by trustees and
 
20 interested persons concerning the internal affairs of trusts[.
 
21 Proceedings],including trusts covered by subsection (c).  Except
 
22 as provided by subsections (c) and (d), proceedings which may be
 
23 maintained under this section are those concerning the
 

 
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 1 administration and distribution of trusts, the declaration of
 
 2 rights and the determination of other matters involving trustees
 
 3 and beneficiaries of trusts.  These include, but are not limited
 
 4 to, proceedings to: 
 
 5      (1)  Appoint or remove a trustee; 
 
 6      (2)  Review trustees' fees and to review and settle interim
 
 7           or final accounts; 
 
 8      (3)  Ascertain beneficiaries, to determine any question
 
 9           arising in the administration or distribution of any
 
10           trust including questions of construction of trust
 
11           instruments, to instruct trustees, and to determine the
 
12           existence or nonexistence of any immunity, power,
 
13           privilege, duty, or right; and 
 
14      (4)  Release registration of a trust. 
 
15      (b)  Neither registration of a trust nor a proceeding under
 
16 this section result in continuing supervisory proceedings.  The
 
17 management and distribution of a trust estate, submission of
 
18 accounts and reports to beneficiaries, payment of trustees' fees
 
19 and other obligations of a trust, acceptance and change of
 
20 trusteeship, and other aspects of the administration of a trust
 
21 shall proceed expeditiously consistent with the terms of the
 
22 trust, free of judicial intervention and without order, approval,
 
23 or other action of any court, subject to the jurisdiction of the
 

 
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 1 court as invoked by interested persons or as otherwise exercised
 
 2 pursuant to law.
 
 3      (c)  A provision in the trust that the laws of this state
 
 4 govern the validity, construction, and administration of the
 
 5 trust and that the trust is subject to the jurisdiction of this
 
 6 State shall be valid, effective, and conclusive for the trust if:
 
 7      (1)  Some or all of the trust assets are deposited in this
 
 8           State and are being administered by a qualified person;
 
 9           for the purposes of this section, "deposited in this
 
10           State" includes being held in a checking account, time
 
11           deposit, certificate of deposit, brokerage account,
 
12           trust company fiduciary account, or other similar
 
13           account or deposit that is located in this State;
 
14      (2)  A trustee is a qualified person who is designated as a
 
15           trustee under the governing instrument or by a court
 
16           having jurisdiction over the trust; for the purposes of
 
17           this section, "qualified person" is as defined in
 
18           section 560:7-   ;
 
19      (3)  The powers of the trustee identified in paragraph (2)
 
20           include or are limited to:
 
21           (A)  Maintaining records for the trust, on an exclusive
 
22                basis or a nonexclusive basis; and
 

 
 
 
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 1           (B)  Preparing or arranging for the preparation of an
 
 2                income tax return that must be filed by the trust,
 
 3                on an exclusive basis or a nonexclusive basis; and
 
 4      (4)  Part or all of the administration occurs in this State,
 
 5           including physically maintaining trust records in this
 
 6           State.
 
 7      (d)  The validity, construction, and administration of a
 
 8 trust with a state jurisdiction provision, including the:
 
 9      (1)  Capacity of the settlor;
 
10      (2)  Powers, obligations, liabilities, and rights of the
 
11           trustees, and the appointment and removal of the
 
12           trustees; and
 
13      (3)  Existence and extent of powers, conferred or retained,
 
14           including a trustee's discretionary powers, the powers
 
15           retained by a beneficiary of the trust, and the
 
16           validity of the exercise of a power;
 
17 shall be determined by the laws of this State."
 
18      SECTION 3.  Section 560:7-203, Hawaii Revised Statutes, is
 
19 amended to read as follows:
 
20      "�560:7-203  Trust proceedings; dismissal of matters
 
21 relating to foreign trusts.  The court will not, over the
 
22 objection of a party, entertain proceedings concerning the
 
23 internal affairs of a trust registered or having its principal
 
24 place of administration in another state, unless (1) all
 

 
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 1 appropriate parties could not be bound by litigation in the
 
 2 courts of the state where the trust is registered or has its
 
 3 principal place of administration [or]; (2) the interests of
 
 4 justice otherwise would seriously be impaired[.]; or (3) the
 
 5 trust satisfies section 560:7-201(c).  The court may condition a
 
 6 stay or dismissal of a proceeding under this section on the
 
 7 consent of any party to jurisdiction of the state in which the
 
 8 trust is registered or has its principal place of business, or
 
 9 the court may grant a continuance or enter any other appropriate
 
10 order."
 
11      SECTION 4.  If any provision of this Act, or the application
 
12 thereof to any person or circumstance is held invalid, the
 
13 invalidity does not affect other provisions or applications of
 
14 the Act which can be given effect without the invalid provision
 
15 or application, and to this end the provisions of this Act are
 
16 severable.
 
17      SECTION 5.  Statutory material to be repealed is bracketed.
 
18 New statutory material is underscored.
 
19      SECTION 6.  This Act shall take effect upon its approval.
 
20 
 
21                           INTRODUCED BY:  _______________________