§ 10-6.6 Exercise of a power of appointment; effect when more extensive

or less extensive than authorized; trustee's authority to

invade principal in trust.

(a) An exercise of a power of appointment is not void because its
exercise is:

(1) More extensive than was authorized but is valid to the extent
authorized by the instrument creating the power.

(2) Less extensive than authorized by the instrument creating the
power, unless the donor has manifested a contrary intention.

(b) An authorized trustee with unlimited discretion to invade trust
principal may appoint part or all of such principal to a trustee of an
appointed trust for, and only for the benefit of, one, more than one or
all of the current beneficiaries of the invaded trust (to the exclusion
of any one or more of such current beneficiaries). The successor and
remainder beneficiaries of such appointed trust may be one, more than
one or all of the successor and remainder beneficiaries of such invaded
trust (to the exclusion of any one, more than one or all of such
successor and remainder beneficiaries).

(1) An authorized trustee exercising the power under this paragraph
may grant a discretionary power of appointment as defined in paragraph
(c) of section 10-3.4 of this article (including a presently exercisable
power of appointment) in the appointed trust to one or more of the
current beneficiaries of the invaded trust, provided that the
beneficiary granted a power to appoint could receive the principal
outright under the terms of the invaded trust.

(2) If the authorized trustee grants a power of appointment under
subparagraph (l) of this paragraph, except as otherwise provided in
subparagraph (3) of this paragraph, the granted power may only exclude
as permissible appointees one or more of the beneficiary, the creator,
or the creator's spouse, or any of the estates, creditors, or creditors
of the estates of the beneficiary, the creator or the creator's spouse.

(3) If the authorized trustee exercises the power under this
paragraph, the appointed trust may grant any power of appointment
included in the invaded trust provided such power has the same class of
permissible appointees as the power of appointment in the invaded trust
and is exercisable in the same fashion as the power of appointment in
the invaded trust.

(4) If the beneficiary or beneficiaries of the invaded trust are
described by a class, the beneficiary or beneficiaries of the appointed
trust may include present or future members of such class.

(c) An authorized trustee with the power to invade trust principal but
without unlimited discretion may appoint part or all of the principal of
the trust to a trustee of an appointed trust, provided that the current
beneficiaries of the appointed trust shall be the same as the current
beneficiaries of the invaded trust and the successor and remainder
beneficiaries of the appointed trust shall be the same as the successor
and remainder beneficiaries of the invaded trust.

(1) If the authorized trustee exercises the power under this
paragraph, the appointed trust shall include the same language
authorizing the trustee to distribute the income or invade the principal
of the appointed trust as in the invaded trust.

(2) If the authorized trustee exercises the power under this paragraph
to extend the term of the appointed trust beyond the term of the invaded
trust, for any period after the invaded trust would have otherwise
terminated under the provisions of the invaded trust, the appointed
trust, in addition to the language required to be included in the
appointed trust pursuant to subparagraph (1) of this paragraph, may also
include language providing the trustees with unlimited discretion to
invade the principal of the appointed trust during such extended term.

(3) If the beneficiary or beneficiaries of the invaded trust are
described by a class, the beneficiary or beneficiaries of the appointed
trust shall include present or future members of such class.

(4) If the authorized trustee exercises the power under this paragraph
and if the invaded trust grants a power of appointment to a beneficiary
of the trust, the appointed trust shall grant such power of appointment
in the appointed trust and the class of permissible appointees shall be
the same as in the invaded trust.

(d) An exercise of the power to invade trust principal under
paragraphs (b) and (c) of this section shall be considered the exercise
of a special power of appointment as defined in section 10-3.2 of this
article.

(e) The appointed trust to which an authorized trustee appoints the
assets of the invaded trust may have a term that is longer than the term
set forth in the invaded trust, including, but not limited to, a term
measured by the lifetime of a current beneficiary.

(f) If an authorized trustee has unlimited discretion to invade the
principal of a trust and the same trustee or another trustee has the
power to invade principal under the trust instrument which power is not
subject to unlimited discretion, such authorized trustee having
unlimited discretion may exercise the power of appointment under
paragraph (b) of this section.

(g) An authorized trustee may exercise the power to appoint in favor
of an appointed trust under paragraphs (b) and (c) of this section
whether or not there is a current need to invade principal under the
terms of the invaded trust.

(h) An authorized trustee exercising the power under this section has
a fiduciary duty to exercise the power in the best interests of one or
more proper objects of the exercise of the power and as a prudent person
would exercise the power under the prevailing circumstances. The
authorized trustee may not exercise the power under this section if
there is substantial evidence of a contrary intent of the creator and it
cannot be established that the creator would be likely to have changed
such intention under the circumstances existing at the time of the
exercise of the power. The provisions of the invaded trust alone are not
to be viewed as substantial evidence of a contrary intent of the creator
unless the invaded trust expressly prohibits the exercise of the power
in the manner intended by the authorized trustee.

(i) Unless the authorized trustee provides otherwise:

(1) The appointment of all of the assets comprising the principal of
the invaded trust to an appointed trust shall include subsequently
discovered assets of the invaded trust and undistributed principal of
the invaded trust acquired after the appointment to the appointed trust;
and

(2) The appointment of part but not all of the assets comprising the
principal of the invaded trust to an appointed trust shall not include
subsequently discovered assets belonging to the invaded trust and
principal paid to or acquired by the invaded trust after the appointment
to the appointed trust; such assets shall remain the assets of the
invaded trust.

(j) The exercise of the power to appoint to an appointed trust under
paragraph (b) or (c) of this section shall be evidenced by an instrument
in writing, signed, dated and acknowledged by the authorized trustee.
The exercise of the power shall be effective thirty days after the date
of service of the instrument as specified in subparagraph (2) of this
paragraph, unless the persons entitled to notice consent in writing to a
sooner effective date. The exercise of the power is irrevocable on such
effective date, either thirty days following service of the notice or
the effective date as set forth in the written consent.

(1) An authorized trustee may exercise the power authorized by
paragraphs (b) and (c) of this section without the consent of the
creator, or of the persons interested in the invaded trust, and without
court approval, provided that the authorized trustee may seek court
approval for the exercise with notice to all persons interested in the
invaded trust.

(2) A copy of the instrument exercising the power and a copy of each
of the invaded trust and the appointed trust shall be delivered (A) to
the creator, if living, of the invaded trust, (B) to any person having
the right, pursuant to the terms of the invaded trust, to remove or
replace the authorized trustee exercising the power under paragraph (b)
or (c) of this section, and (C) to any persons interested in the invaded
trust and the appointed trust (or, in the case of any persons interested
in the trust, to any guardian of the property, conservator or personal
representative of any such person or the parent or person with whom any
such minor person resides), by registered or certified mail, return
receipt requested, or by personal delivery or in any other manner
directed by the court having jurisdiction over the invaded trust.

(3) The instrument exercising the power shall state whether the
appointment is of all the assets comprising the principal of the invaded
trust or a part but not all the assets comprising the principal of the
invaded trust and if a part, the approximate percentage of the value of
the principal of the invaded trust that is the subject of the
appointment.

(4) A person interested in the invaded trust may object to the
trustee's exercise of the power under this section by serving a written
notice of objection upon the trustee prior to the effective date of the
exercise of the power. The failure to object shall not constitute a
consent.

(5) The receipt of a copy of the instrument exercising the power shall
not affect the right of any person interested in the invaded trust to
compel the authorized trustee who exercised the power under paragraph
(b) or (c) of this section to account for such exercise and shall not
foreclose any such interested person from objecting to an account or
compelling a trustee to account. Whether the exercise of a power under
paragraph (b) or (c) of this section begins the running of the statute
of limitations on an action to compel a trustee to account shall be
based on all the facts and circumstances of the situation.

(6) A copy of the instrument exercising the power shall be kept with
the records of the invaded trust and, within twenty days of the
effective date, the original shall be filed in the court having
jurisdiction over the invaded trust. Where a trustee of an inter vivos
trust exercises the power and the trust has not been the subject of a
proceeding in the surrogate's court, no filing is required. The
instrument shall state that in certain circumstances the appointment
will begin the running of the statute of limitations that will preclude
persons interested in the invaded trust from compelling an accounting by
the trustees after the expiration of a given time.

(7) Prior to the effective date as provided herein, a trustee may
revoke the exercise of the power to invade to a new trust. Where a
trustee has served notice of the exercise of the power pursuant to
subparagraph (2) of this paragraph, the trustee shall serve notice of
the revocation of the exercise of the power to persons interested in the
invaded trust and the appointed trust by registered or certified mail,
return receipt requested, or by personal delivery or in any other manner
directed by the court having jurisdiction over the invaded trust. Where
the notice of the exercise of the power was filed with the court, the
trustee shall file the notice of revocation of the exercise of the power
with such court.

(k) This section shall not be construed to abridge the right of any
trustee to appoint property in further trust that arises under the terms
of the governing instrument of a trust or under any other provision of
law or under common law, or as directed by any court having jurisdiction
over the trust.

(1) Nothing in this section is intended to create or imply a duty to
exercise a power to invade principal, and no inference of impropriety
shall be made as a result of an authorized trustee not exercising the
power conferred under paragraph (b) or (c) of this section.

(m) A power authorized by paragraph (b) or (c) of this section may be
exercised, subject to the provisions of paragraph (h) of this section,
unless expressly prohibited by the terms of the governing instrument,
but a general prohibition of the amendment or revocation of the invaded
trust or a provision that constitutes a spendthrift clause shall not
preclude the exercise of a power under paragraph (b) or (c) of this
section.

(n) An authorized trustee may not exercise a power authorized by
paragraph (b) or (c) of this section to effect any of the following:

(1) To reduce, limit or modify any beneficiary's current right to a
mandatory distribution of income or principal, a mandatory annuity or
unitrust interest, a right to withdraw a percentage of the value of the
trust or a right to withdraw a specified dollar amount, provided that
such mandatory right has come into effect with respect to the
beneficiary. Notwithstanding the foregoing, but subject to the other
limitations in this section, an authorized trustee may exercise a power
authorized by paragraph (b) or (c) of this section to appoint to an
appointed trust that is a supplemental needs trust that conforms to the
provisions of section 7-1.12 of this chapter;

(2) To decrease or indemnify against a trustee's liability or
exonerate a trustee from liability for failure to exercise reasonable
care, diligence and prudence;

(3) To eliminate a provision granting another person the right to
remove or replace the authorized trustee exercising the power under
paragraph (b) or (c) of this section unless a court having jurisdiction
over the trust specifies otherwise;

(4) To make a binding and conclusive fixation of the value of any
asset for purposes of distribution, allocation or otherwise; or

(5) To jeopardize (A) the deduction or exclusion originally claimed
with respect to any contribution to the invaded trust that qualified for
the annual exclusion under section 2503(b) of the internal revenue code,
the marital deduction under section 2056(a) or 2523(a) of the internal
revenue code, or the charitable deduction under section 170(a), 642(c),
2055(a) or 2522(a) of the internal revenue code, (B) the qualification
of a transfer as a direct skip under section 2642(c) of the internal
revenue code, or (C) any other specific tax benefit for which a
contribution originally qualified for income, gift, estate, or
generation-skipping transfer tax purposes under the internal revenue
code.

(o) An authorized trustee shall consider the tax implications of the
exercise of the power under paragraph (b) or (c) of this section.

(p) An authorized trustee may not exercise a power described in
paragraph (b) or (c) of this section in violation of the limitations
under sections 9-1.1, 10-8.1 and 10-8.2 of this chapter, and any such
exercise shall void the entire exercise of such power.

(q)(1) Unless a court otherwise directs, an authorized trustee may not
exercise a power authorized by paragraph (b) or (c) of this section to
change the provisions regarding the determination of the compensation of
any trustee; the commissions or other compensation payable to the
trustees of the invaded trust may continue to be paid to the trustees of
the appointed trust during the term of the appointed trust and shall be
determined in the same manner as in the invaded trust.

(2) No trustee shall receive any paying commission or other
compensation for appointing of property from the invaded trust to an
appointed trust pursuant to paragraph (b) or (c) of this section.

(r) Unless the invaded trust expressly provides otherwise, this
section applies to:

(1) Any trust governed by the laws of this state, including a trust
whose governing law has been changed to the laws of this state; and

(2) Any trust that has a trustee who is an individual domiciled in
this state or a trustee which is an entity having an office in this
state, provided that a majority of the trustees select this state as the
location for the primary administration of the trust by an instrument in
writing, signed and acknowledged by a majority of the trustees. The
instrument exercising this selection shall be kept with the records of
the invaded trust.

(s) For purposes of this section:

(1) The term "appointed trust" means an irrevocable trust which
receives principal from an invaded trust under paragraph (b) or (c) of
this section including a new trust created by the creator of the invaded
trust or by the trustees, in that capacity, of the invaded trust. For
purposes of creating the new trust, the requirement of section 7-1.17 of
this chapter that the instrument be executed and acknowledged by the
person establishing such trust shall be deemed satisfied by the
execution and acknowledgment of the trustee of the appointed trust.

(2) The term "authorized trustee" means, as to an invaded trust, any
trustee or trustees with authority to pay trust principal to or for one
or more current beneficiaries other than (i) the creator, or (ii) a
beneficiary to whom income or principal must be paid currently or in the
future, or who is or will become eligible to receive a distribution of
income or principal in the discretion of the trustee (other than by the
exercise of a power of appointment held in a non-fiduciary capacity).

(3) References to sections of the "internal revenue code" refer to the
United States internal revenue code of 1986, as amended from time to
time, or to corresponding provisions of subsequent internal revenue
laws, and also refer to corresponding provisions of state law.

(4) The term "current beneficiary or beneficiaries" means the person
or persons (or as to a class, any person or persons who are or will
become members of such class) to whom the trustees may distribute
principal at the time of the exercise of the power, provided however
that the interest of a beneficiary to whom income, but not principal,
may be distributed in the discretion of the trustee of the invaded trust
may be continued in the appointed trust.

(5) The term "invade" shall mean the power to pay directly to the
beneficiary of a trust or make application for the benefit of the
beneficiary.

(6) The term "invaded trust" means any existing irrevocable inter
vivos or testamentary trust whose principal is appointed under paragraph
(b) or (c) of this section.

(7) The term "person or persons interested in the invaded trust" shall
mean any person or persons upon whom service of process would be
required in a proceeding for the judicial settlement of the account of
the trustee, taking into account section three hundred fifteen of the
surrogate's court procedure act.

(8) The term "principal" shall include the income of the trust at the
time of the exercise of the power that is not currently required to be
distributed, including accrued and accumulated income.

(9) The term "unlimited discretion" means the unlimited right to
distribute principal that is not modified in any manner. A power to pay
principal that includes words such as best interests, welfare, comfort,
or happiness shall not be considered a limitation or modification of the
right to distribute principal.

(10) The creator shall not be considered to be a beneficiary of an
invaded or appointed trust by reason of the trustee's authority to pay
trust principal to the creator pursuant to section 7-1.11 of this
chapter or by reason of the trustee's authority under the trust
instrument or any other provision of law to pay or reimburse the creator
for any tax on trust income or trust principal that is payable by the
creator under the law imposing such tax or to pay any such tax directly
to the taxing authorities.

(t) Cross-reference. For the exercise of the power under paragraph (b)
or (c) of this section where there are multiple trustees, see sections
10-6.7 and 10-10.7 of this article.