Charitable Trusts

Prohibits public officers and employees, except probate judges,
from appointing trustees of a charitable trust.  Permits a
designated beneficiary group to bring suit against the trust.
Sets a maximum 5-year renewable term for charitable trustees.
Limits trustee commissions.

THE SENATE                              S.B. NO.           632
TWENTIETH LEGISLATURE, 1999                                
STATE OF HAWAII                                            

                   A  BILL  FOR  AN  ACT



 1      SECTION 1.  The legislature finds as follows:
 2      (1)  Charitable trusts are gifts in trust for the benefit of
 3           the public or for the establishment or support of
 4           institutions dedicated to the welfare of the public or
 5           to a class or part of the public;
 6      (2)  Because of their charitable purposes, and because their
 7           establishment and operation confers a benefit on the
 8           public and assists the State in meeting its obligations
 9           to their beneficiaries, charitable trusts are said to
10           be favored under the law, and enjoy advantages not
11           available to other private trusts, organizations, or
12           individuals, such as federal and state tax exemptions;
13      (3)  For the same reasons, including the public undertakings
14           and obligations of charitable trusts and the retention
15           by charitable trusts for public purposes of revenues
16           otherwise payable as taxes, state and federal
17           governments have a particular interest in the operation
18           of charitable trusts and an obligation to ensure that
19           they fulfill their essentially public purposes;

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 1      (4)  In recent years, concerns have been raised both
 2           nationally and in Hawaii over various aspects of
 3           charitable trust operation, including the selection,
 4           term of service, and compensation of trustees of
 5           charitable trusts and the legal standing of
 6           beneficiaries to seek instructions or other redress in
 7           courts with jurisdiction over charitable trusts;
 8      (5)  With regard to trustee selection, some charitable
 9           trustees in Hawaii have been selected by individuals
10           who also serve as members of the judiciary, a practice
11           which has created the appearance of impropriety and has
12           caused the independence of the judiciary to be
13           questioned;
14      (6)  It is in the public interest that these concerns be
15           addressed in order to ensure the continued operation of
16           charitable trusts in a manner of maximum benefit to the
17           public generally and trust beneficiaries specifically;
18      (7)  It is in the public interest that:
19           (A)  Charitable trustees serve for a term certain
20                subject to renewal; and
21           (B)  Representative beneficiary groups be ensured legal
22                standing to seek redress under commonly accepted
23                principles of trust law;

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 1      (8)  It is in the public interest that no public official or
 2           employee acting in an official or individual capacity,
 3           excepting only members of the judiciary with general
 4           jurisdiction over charitable trusts, participate in the
 5           nomination, selection, or appointment of charitable
 6           trustees; and
 7      (9)  It is in the public interest that:
 8           (A)  The provisions of this Act be interpreted and
 9                construed so as to fully effectuate its purposes;
10                and
11           (B)  Except as otherwise specifically provided in this
12                Act or in other statutory provisions, the common
13                law applicable to charitable trusts continues to
14                apply.
15      SECTION 2.  Chapter 78, Hawaii Revised Statutes, is amended
16 by adding a new section to be appropriately designated and to
17 read as follows:
18      "78-    Appointment of trustees of charitable trusts.  (a)
19 No public officer or employee, excepting only the judge of the
20 probate division of the circuit court in the circuit in which a
21 charitable trust files its accounting, shall participate or have
22 any role in nominating, selecting, or appointing any trustee of a
23 charitable trust.

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 1      (b)  After the effective date of this Act, any charitable
 2 trust that previously utilized public officers or employees,
 3 whether in their official or individual capacities, in the
 4 nomination, selection, or appointment of its trustees, shall
 5 exercise another method of nomination, selection, or appointment
 6 in the manner provided by this subsection.  If the applicable
 7 trust agreement does not provide for an alternate method of
 8 nomination, selection, or appointment, the probate division of
 9 the circuit court in the circuit in which the trust files its
10 accounting shall entertain petitions, from individuals or groups
11 with legal standing to petition, for designation of an alternate
12 method, and shall thereafter designate an alternate method, all
13 pursuant to section 560:7-201."
14      SECTION 3.  Chapter 554, Hawaii Revised Statutes, is amended
15 by adding two new sections to be appropriately designated and to
16 read as follows:
17      "554-    Charitable trusts; legal standing.  (a)  In
18 addition to the right of the attorney general to bring and
19 participate in appropriate actions in court relating to
20 charitable trusts, a designated beneficiary group shall be
21 entitled to initiate or participate in all such actions.
22      (b)  For purposes of this section, a "designated beneficiary
23 group" shall mean any organization which demonstrates to the

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 1 satisfaction of the court that it represents:
 2      (1)  Over fifty per cent of the direct beneficiaries of the
 3           applicable charitable trust; or
 4      (2)  A group or class of direct beneficiaries whose
 5           interests would not otherwise be adequately represented
 6           by the attorney general or another designated
 7           beneficiary group.
 8      (c)  For purposes of this section, "direct beneficiaries"
 9 means the beneficiaries of a trust as stated in the trust
10 document or as otherwise determined by the court to have been
11 intended by the settlor to benefit directly from the trust.
12      (d)  In actions brought under this section, the court shall
13 award attorneys' fees and costs to the designated beneficiary
14 group if it substantially prevails.
15      554-    Trustee terms.  No trustee of a charitable trust
16 shall be appointed for a term to exceed five years.  At the
17 conclusion of each trustee's term, the trustee's term shall be
18 considered for renewal using the same criteria that are used at
19 that time for trustee selection.  Notwithstanding any vesting
20 orders, this section shall apply to all trustees serving as of
21 the effective date of this section; provided that, except where
22 the current term of any trustee expires prior to five years after
23 the effective date of this section, the trustee's five-year term

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 1 shall begin as of the effective date of this section."
 2      SECTION 4.  Section 554-2, Hawaii Revised Statutes, is
 3 amended by amending subsection (a) to read as follows:
 4      "(a)  Whenever any appointment of a trustee under a private
 5 trust is made by [any court of record,] the probate court, if,
 6 prior to such appointment, beneficiaries who constitute a
 7 majority both in number and interest of the beneficiaries of the
 8 trust (as hereinafter defined) nominate for the trusteeship by an
 9 instrument or instruments in writing filed in the court any
10 qualified person or corporation worthy in the opinion of the
11 court to be appointed, the court shall appoint the nominee as the
12 trustee, unless the express terms of the trust provide an
13 effective method of nomination or appointment.  No person so
14 nominated as trustee by the beneficiaries of any such trust shall
15 be held disqualified to be appointed or to act as the trustee for
16 the sole reason that the person is a beneficiary or a possible
17 beneficiary under the trust estate."
18      SECTION 5.  Statutory material to be repealed is bracketed.
19 New statutory material is underscored.
20      SECTION 6.  This Act shall take effect upon its approval.
22                           INTRODUCED BY:_________________________

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