HOUSE OF REPRESENTATIVES
TWENTY-SEVENTH LEGISLATURE, 2014
STATE OF HAWAII
A BILL FOR AN ACT
relating to trustees.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The legislature finds that other states have been aggressively legislating with the goal of attracting trust business and that Hawaii residents are creating trusts in those states or moving the situs of existing trusts outside Hawaii. The State is losing business, and Hawaii residents who cannot currently establish directed trusts (generally, a trust where the trust administration duties and the investment management duties are separated) without the comfort of a statute that clearly allows them to do so are forced to endure additional costs and inconveniences when forming trusts elsewhere. Thirty-four states currently have laws in place that allow for directed trusts. Although Hawaii law arguably allows for directed trusts, estate planners and advisors continue to recommend that their clients establish or move their trusts to other states until directed trusts are clearly authorized in Hawaii.
This Act will:
(1) Generally waive the duty to diversify trust assets where a trust provision directs the retention of property;
(2) Provide that a dissenting trustee shall dissent in writing to a failure to act or enter into a transaction; and
(3) Allow the settlor of a trust to designate the investment function entirely to an investment advisor and the administrative function to an administrative trustee.
The purpose of this Act is to protect Hawaii's economy from attempts to lure Hawaii's trust business to other states.
SECTION 2. Section 554C-3, Hawaii Revised Statutes, is amended to read as follows:
Diversification. (a) A trustee shall diversify the investments of
the trust unless the trustee reasonably determines that, because of special
circumstances or directives of the trust, the purposes of the trust are better
served without diversifying.
(b) Notwithstanding subsection (a), a provision in a trust directing the retention of any property as a trust investment shall be deemed to waive any duty to diversify otherwise applicable to the trustee with respect to the property and shall exonerate the trustee from liability for purposes of this section, except in the case of wilful misconduct.
For purposes of this section, "wilful misconduct" means intentional wrongdoing, not mere negligence, gross negligence, or recklessness; and "wrongdoing" means malicious conduct or conduct designed to defraud or seek an unconscionable advantage."
SECTION 3. Section 554G-4.5, Hawaii Revised Statutes, is amended by amending subsection (c) to read as follows:
"(c) Notwithstanding subsection (b),
whenever there is a dispute, deadlock, or difference of opinion between a
trustee and an advisor, the transferor may direct that the determination of the
advisor shall be binding upon the trustee; provided that the trustee shall bear
no liability or accountability for any act or transaction entered into or omitted
as a result of the enforcement of the advisor's determination. The trustee's
administrative and non-administrative fiduciary duty to the beneficiaries shall
be waived as to the specific act or [
executed] transaction[ ;] entered
into or omitted as a result of the enforcement of the advisor's determination;
provided that [ the]:
(1) The trustee dissents in writing
before the act or transaction is completed[
.], or dissents in writing
to a failure to act or to enter into a transaction in a reasonably timely
(2) If the advisor is appointed by the transferor under the terms of the trust and section 560:7-302 applies to the trust and the advisor, the trustee is not required to dissent in writing for the waiver of the trustee's administrative and non-administrative fiduciary duties to the beneficiaries to take effect."
SECTION 4. Section 560:7-302, Hawaii Revised Statutes, is amended to read as follows:
"§560:7-302 Trustee's standard of care and performance. (a) Except as otherwise provided by the terms of the trust, the trustee shall observe the standards in dealing with the trust assets that would be observed by a prudent person dealing with the property of another, and if the trustee has special skills or is named trustee on the basis of representations of special skills or expertise, the trustee is under a duty to use those skills.
(1) Where one or more persons are given authority by the terms of a trust to direct, consent to, or disapprove a fiduciary's actual or proposed investment decisions, distribution decisions, or other decision of the fiduciary, the persons shall be considered to be advisors and fiduciaries when exercising the authority unless the trust otherwise provides;
(2) If a trust provides that a fiduciary is to follow the direction of an advisor and the fiduciary acts in accordance with such a direction, then except in cases of wilful misconduct on the part of the fiduciary so directed, the fiduciary shall not be liable for any loss resulting directly or indirectly from any such act;
(3) If a trust provides that a fiduciary is to make decisions with the consent of an advisor, then except in cases of wilful misconduct on the part of the fiduciary, the fiduciary shall not be liable for any loss resulting directly or indirectly from any act taken or omitted as a result of that advisor's failure to provide that consent after having been requested to do so by the fiduciary;
(4) Whenever a trust provides that a fiduciary is to follow the direction of an advisor with respect to investment decisions, distribution decisions, or other decisions of the fiduciary, then except to the extent that the trust provides otherwise, the fiduciary shall have no duty to:
(A) Monitor the conduct of the advisor;
(B) Provide advice to the advisor or consult with the advisor; or
(C) Communicate with or warn or apprise any beneficiary or third party concerning instances in which the fiduciary would or might have exercised the fiduciary's own discretion in a manner different from the manner directed by the advisor;
Absent clear and convincing evidence to the contrary, the actions of the fiduciary pertaining to matters within the scope of the advisor's authority, such as confirming that the advisor's directions have been carried out and recording and reporting actions taken at the advisor's direction, shall be presumed to be administrative actions taken by the fiduciary solely to allow the fiduciary to perform those duties assigned to the fiduciary under the trust and those administrative actions shall not be deemed to constitute an undertaking by the fiduciary to monitor the advisor or otherwise participate in actions within the scope of the advisor's authority.
(c) For purposes of this section:
"Advisor" includes a "protector" who shall have all of the power and authority granted to the protector by the terms of the trust, which may include:
(1) The power to remove and appoint trustees, advisors, trust committee members, and other protectors;
(2) The power to modify or amend the trust to achieve favorable tax status or to facilitate the efficient administration of the trust; and
(3) The power to modify, expand, or restrict the terms of a power of appointment granted to a beneficiary by the trust.
"Investment advisor" means an advisor with authority with respect to investment decisions.
"Investment decision" means, with respect to any investment, the retention, purchase, sale, exchange, tender, or other transaction affecting the ownership thereof or rights therein and, with respect to non-publicly traded investments, the valuation thereof.
"Wilful misconduct" means intentional wrongdoing, not mere negligence, gross negligence, or recklessness.
"Wrongdoing" means malicious conduct or conduct designed to defraud or seek an unconscionable advantage."
SECTION 5. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 6. This Act shall take effect on July 1, 2014.
Trusts; Diversification; Trust Administration; Trustees; Standards and Performance; Advisors
Waives duty to diversify trust when trust provision directs retention of property. Requires dissenting trustee to dissent in writing to a failure to act or enter into a transaction. Allows settlor of a trust to designate investment function to an investment advisor, and administrative function to an administrative trustee.
The summary description of legislation appearing on this page is for informational purposes only and is not legislation or evidence of legislative intent.