Section 34-NEW - [Newly enacted section not yet numbered] [Effective 1/1/2025] Tax-related limitations(a) As used in this section:(1) "Grantor trust" means a trust as to which a settlor of a first trust is considered the owner under Sections 671 to 677, inclusive, and Section 679 of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time, and the regulations thereunder.(2) "Nongrantor trust" means a trust that is not a grantor trust.(3) "Qualified benefits property" means property subject to the minimum distribution requirements of Section 401(a)(9) of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time, and the regulations thereunder, or to any similar requirements that refer to said Section 401(a)(9) or such regulations.(b) An exercise of the decanting power is subject to the following limitations: (1) If a first trust contains property that qualified, or would have qualified but for the provisions of sections 1 to 29, inclusive, of this act other than this section, for a marital deduction for purposes of the gift or estate tax under the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time, and the regulations thereunder or a state gift, estate or inheritance tax, the second-trust instrument shall not include or omit any term that, if included in or omitted from the trust instrument for the trust to which the property was transferred, would have prevented the transfer from qualifying for the deduction, or would have reduced the amount of the deduction, under the same provisions of said internal revenue code or state law under which the transfer qualified.(2) If the first trust contains property that qualified, or would have qualified but for the provisions of sections 1 to 29, inclusive, of this act other than this section, for a charitable deduction for purposes of the income, gift or estate tax under the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time, and the regulations thereunder or a state income, gift, estate or inheritance tax, the second-trust instrument shall not include or omit any term that, if included in or omitted from the trust instrument for the trust to which the property was transferred, would have prevented the transfer from qualifying for the deduction, or would have reduced the amount of the deduction, under the same provisions of said internal revenue code or state law under which the transfer qualified.(3) If the first trust contains property that qualified, or would have qualified but for the provisions of sections 1 to 29, inclusive, of this act other than this section, for the exclusion from the gift tax described in Section 2503(b) of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time, and the regulations thereunder, the second-trust instrument shall not include or omit a term that, if included in or omitted from the trust instrument for the trust to which the property was transferred, would have prevented the transfer from qualifying under Section 2503(b) of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time, and the regulations thereunder. If the first trust contains property that qualified, or would have qualified but for the provisions of sections 1 to 29, inclusive, of this act other than this section, for the exclusion from the gift tax described in Section 2503(b) of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time, and the regulations thereunder by application of Section 2503(c) of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time, and the regulations thereunder, the second-trust instrument shall not include or omit a term that, if included or omitted from the trust instrument for the trust to which the property was transferred, would have prevented the transfer from qualifying under said Section 2503(c).(4) If the property of the first trust includes shares of stock in an S corporation, as defined in Section 1361 of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time, and the regulations thereunder and the first trust is, or but for the provisions of sections 1 to 29, inclusive, of this act other than this section would be, a permitted shareholder under any provision of said Section 1361, an authorized fiduciary may exercise the power with respect to part or all of the S corporation stock only if any second trust receiving the stock is a permitted shareholder under Section 1361(c)(2) of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time, and the regulations thereunder. If the property of the first trust includes shares of stock in an S corporation and the first trust is, or but for the provisions of sections 1 to 29, inclusive, of this act other than this section would be, a qualified subchapter-S trust within the meaning of Section 1361(d) of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time, and the regulations thereunder, the second-trust instrument shall not include or omit a term that prevents the second trust from qualifying as a qualified subchapter-S trust.(5) If the first trust contains property that qualified, or would have qualified but for the provisions of sections 1 to 29, inclusive, of this act other than this section, for a zero inclusion ratio for purposes of the generation-skipping transfer tax under Section 2642(c) of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time, and the regulations thereunder, the second-trust instrument shall not include or omit a term that, if included in or omitted from the first-trust instrument, would have prevented the transfer to the first trust from qualifying for a zero inclusion ratio under said Section 2642(c).(6) If the first trust is directly or indirectly the beneficiary of qualified benefits property, the second-trust instrument may not include or omit any term that, if included in or omitted from the first-trust instrument, would have increased the minimum distributions required with respect to the qualified benefits property under Section 401(a)(9) of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time, and the regulations thereunder and any applicable regulations, or any similar requirements that refer to said Section 401(a)(9) or the regulations thereunder. If an attempted exercise of the decanting power violates the provisions of this subdivision, the trustee is deemed to have held the qualified benefits property and any reinvested distributions of the property as a separate share from the date of the exercise of the power and section 22 of this act applies to the separate share.(7) If the first trust qualifies as a grantor trust because of the application of Section 672(f)(2)(A) of the Internal Revenue Code of 1986, or any subsequent corresponding internal revenue code of the United States, as amended from time to time, and the regulations thereunder, the second trust may not include or omit a term that, if included in or omitted from the first-trust instrument, would have prevented the first trust from qualifying under said Section 672(f)(2)(A).(8) As used in this subdivision, "tax benefit" means a federal or state tax deduction, exemption, exclusion or other benefit not otherwise listed in this section, except for a benefit arising from being a grantor trust. Subject to subdivision (9) of this subsection, a second-trust instrument may not include or omit a term that, if included in or omitted from the first-trust instrument, would have prevented qualification for a tax benefit if: (A) The first-trust instrument expressly indicates an intent to qualify for the benefit or the first-trust instrument clearly is designed to enable the first trust to qualify for the benefit; and (B) the transfer of property held by the first trust or the first trust qualified or, but for the provisions of sections 1 to 29, inclusive, of this act other than this section, would have qualified for the tax benefit.(9) Subject to subdivision (4) of this subsection: (A) Except as provided in subdivision (7) of this subsection, the second trust may be a nongrantor trust, even if the first trust is a grantor trust; and (B) except as provided in subdivision (10) of this subsection, the second trust may be a grantor trust, even if the first trust is a nongrantor trust.(10) An authorized fiduciary may not exercise the decanting power if a settlor objects in a signed record delivered to the fiduciary within the notice period and: (A) The first trust and a second trust are both grantor trusts, in whole or in part, the first trust grants the settlor or another person the power to cause the first trust to cease to be a grantor trust, and the second trust does not grant an equivalent power to the settlor or other person; or (B) the first trust is a nongrantor trust and a second trust is a grantor trust, in whole or in part, with respect to the settlor, unless: (i) The settlor has the power at all times to cause the second trust to cease to be a grantor trust; or (ii) the first-trust instrument contains a provision granting the settlor or another person a power that would cause the first trust to cease to be a grantor trust and the second-trust instrument contains the same provision.Conn. Gen. Stat. § 34-NEW
Added by P.A. 24-0104,S. 19 of the Connecticut Acts of the 2024 Regular Session, eff. 1/1/2025.