New Hampshire Revised Statutes 564-C:1-106 – Trustee’s Power to Convert to Unitrust
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(a) Unless expressly prohibited by the terms of the trust, a trustee may convert a trust into a unitrust as described in this section if all of the following apply:
(1) The trustee determines that the conversion will enable the trustee to better carry out the intent of the settlor, as defined in N.H. Rev. Stat. § 564-B:1-103(15), and the purposes of the trust.
(2) The trustee gives written notice of the trustee’s intention to convert the trust into a unitrust and of how the unitrust will operate, including what initial decisions the trustee will make under this section, to all the qualified beneficiaries, as defined in N.H. Rev. Stat. § 564-B:1-103(12) and including the director of charitable trusts if, with respect to the trust, the director has the right of a “qualified beneficiary” under N.H. Rev. Stat. § 564-B:1-110(c).
(3) No qualified beneficiary objects to the conversion to a unitrust in a writing delivered to the trustee within 60 days of the mailing of the notice under subparagraph (a)(2).
(b)(1) The trustee may petition the court to approve the conversion to a unitrust if a qualified beneficiary timely objects to the conversion of the unitrust.
(2) A qualified beneficiary may request a trustee to convert to a unitrust. If the trustee does not convert, the beneficiary may petition the court to order the conversion.
(3) The court shall approve the conversion or direct the requested conversion if the court concludes that the conversion will enable the trustee to better carry out the intent of the settlor and the purposes of the trust.
(c) In deciding whether to exercise the power conferred by paragraph (a), a trustee may consider, among other things, all of the following:
(1) the size of the trust;
(2) the nature and estimated duration of the trust;
(3) the liquidity and distribution requirements of the trust;
(4) the needs for regular distributions and preservation and appreciation of capital;
(5) the expected tax consequences of the conversion;
(6) the assets held in the trust; the extent to which they consist of financial assets; interests in closely held enterprises, tangible and intangible personal property or real property; and the extent to which an asset is used by a beneficiary;
(7) to the extent reasonably known to the trustee, the needs of the beneficiaries for present and future distributions authorized or required by the terms of the trust;
(8) whether and to what extent the terms of the trust gives the trustee the power to invade principal or accumulate income or prohibits the trustee from invading principal or accumulating income and the extent to which the trustee has exercised a power from time to time to invade principal or accumulate income; and
(9) the actual and anticipated effect of economic conditions on principal and income and effects of inflation and deflation.
(d) After a trust is converted to a unitrust, all of the following apply:
(1) The trustee shall follow an investment policy seeking a total return for the investments held by the trust, whether the return is to be derived:
(A) from appreciation of capital;
(B) from earnings and distributions from capital; or
(C) from both.
(2) The trustee shall make regular distributions in accordance with the governing instrument construed in accordance with the provisions of this section.
(3) Under the terms of the trust, the term “income” shall mean an annual distribution (the unitrust distribution) equal to not less than 3 percent nor more than 5 percent (the payout percentage) of the net fair market value of the trust’s assets as determined at the end of the calendar year, whether such assets would be considered income or principal under other provisions of this chapter, averaged over the lesser of:
(A) The 3 preceding years; or
(B) The period during which the trust has been in existence.
(e) The trustee may in the trustee’s discretion from time to time determine all of the following:
(1) The effective date of a conversion to a unitrust.
(2) The provisions for prorating a unitrust distribution for a short year in which a beneficiary’s right to payments commences or ceases.
(3) The frequency of unitrust distributions during the year.
(4) The effect of other payments from or contributions to the trust on the trust’s valuation.
(5) How frequently to value nonliquid assets and whether to estimate their value.
(6) Whether to omit from the calculations trust property occupied or possessed by a beneficiary.
(7) Any other matters necessary for the proper functioning of the unitrust.
(f)(1) Expenses which would be deducted from income if the trust were not a unitrust may not be deducted from the unitrust distribution.
(2) Unless otherwise provided by the governing instrument, the unitrust distribution shall be paid from net income, as such term would be determined if the trust were not a unitrust. To the extent net income is insufficient, the unitrust distribution shall be paid from net realized short-term capital gains. To the extent income and net realized short-term capital gains are insufficient, the unitrust distribution shall be paid from net realized long-term capital gains. To the extent income and net realized short-term and long-term capital gains are insufficient, the unitrust distribution shall be paid from the principal of the trust.
(g) The trustee or, if the trustee declines to do so, a beneficiary may petition the court to:
(1) select a payout percentage different than 3 to 5 percent;
(2) provide for a distribution of net income, as would be determined if the trust were not a unitrust, in excess of the unitrust distribution if such distribution is necessary to preserve a tax benefit;
(3) average the valuation of the trust’s net assets over a period other than 3 years; or
(4) Reconvert from a unitrust.
(h) A conversion to a unitrust does not affect a term of the trust directing or authorizing the trustee to distribute principal or authorizing a beneficiary to withdraw a portion or all of the principal.
(i) A trustee may not convert a trust into a unitrust in any of the following circumstances:
(1) If payment of the unitrust distribution would change the amount payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust assets.
(2) If the unitrust distribution would be made from any amount which is permanently set aside for charitable purposes under the terms of the trust and for which a federal estate or gift tax deduction has been taken, unless both income and principal are so set aside.
(3) If:
(A) Possessing or exercising the power to convert would cause an individual to be treated as the owner of all or part of the trust for federal income tax purposes; and
(B) The individual would not be treated as the owner if the trustee did not possess the power to convert.
(4) If:
(A) possessing or exercising the power to convert would cause all or part of the trust assets to be subject to federal estate or gift tax with respect to an individual; and
(B) the assets would not be subject to federal estate or gift tax with respect to the individual if the trustee did not possess the power to convert.
(5) If the conversion would result in the disallowance of a federal estate tax or gift tax marital deduction which would be allowed if the trustee did not have the power to convert.
(6) If the trustee is a beneficiary of the trust.
(j)(1) If subparagraph (i)(3), (i)(4), or (i)(6) applies to a trustee and there is more than one trustee, a cotrustee to whom the provision does not apply may convert the trust, unless the exercise of the power by the remaining trustee or trustees is prohibited by the terms of the trust.
(2) If subparagraph (i)(3), (i)(4), or (i)(6) applies to all the trustees, the trustees may petition the court to direct a conversion.
(k) A trustee may permanently release the power conferred by paragraph (a) or may release the power conferred by paragraph (a) for a specified period including a period measured by the life of an individual to convert to a unitrust if any of the following apply:
(1) The trustee is uncertain about whether possessing or exercising the power will cause a result described in subparagraph (i)(3), (i)(4), or (i)(5).
(2) The trustee determines that possessing or exercising the power will or may deprive the trust of a tax benefit or impose a tax burden not described in paragraph (i).
(l) For the purposes of this section, a person may represent and bind another person in accordance with Article 3 of RSA 564-B.
(m) Any trustee or disinterested person who in good faith takes or fails to take any action under this section shall not be liable to any person affected by such action or inaction, regardless of whether such person received written notice as provided in this section and regardless of whether such person was under a legal disability at the time of the delivery of such notice. Such person’s exclusive remedy shall be to obtain an order of the court directing the trustee to convert an income trust to a unitrust, to reconvert from a unitrust to an income trust, or to change the percentage used to calculate the unitrust amount.
(n) This section shall be construed as pertaining to the administration of a trust and shall be available to any trust that is administered in New Hampshire or that is governed by the laws of this section unless:
(1) the terms of the trust reflect an intention that the current beneficiary or beneficiaries are to receive an amount other than a reasonable current return from the trust;
(2) the trust is a trust having a guaranteed annuity interest or fixed percentage interest as described in section 170(f)(2)(B) of the Internal Revenue Code, a pooled income fund (within the meaning of section 642(c)(5) of the Internal Revenue Code), a charitable remainder trust (within the meaning of section 664(d) of the Internal Revenue Code), a qualified subchapter S trust (within the meaning of section 1361(c) of the Internal Revenue Code), a personal residence trust (within the meaning of section 2702(a)(3)(A) of the Internal Revenue Code), or a trust in which one or more settlors retained a qualified interest (within the meaning of section 2702(b) of the Internal Revenue Code);
(3) one or more persons to whom the trustee could distribute income have a power of withdrawal over the trust that is not subject to an ascertainable standard or that can be exercised to discharge a duty of support he or she possesses; or
(4) the terms of the trust expressly prohibit the use of this section by specific reference to the chapter or expressly states the settlor’s intent that net income not be calculated as a unitrust amount.
(1) The trustee determines that the conversion will enable the trustee to better carry out the intent of the settlor, as defined in N.H. Rev. Stat. § 564-B:1-103(15), and the purposes of the trust.
Terms Used In New Hampshire Revised Statutes 564-C:1-106
- Annuity: A periodic (usually annual) payment of a fixed sum of money for either the life of the recipient or for a fixed number of years. A series of payments under a contract from an insurance company, a trust company, or an individual. Annuity payments are made at regular intervals over a period of more than one full year.
- Assets: (1) The property comprising the estate of a deceased person, or (2) the property in a trust account.
- Beneficiary: A person who is entitled to receive the benefits or proceeds of a will, trust, insurance policy, retirement plan, annuity, or other contract. Source: OCC
- Fair market value: The price at which an asset would change hands in a transaction between a willing, informed buyer and a willing, informed seller.
- following: when used by way of reference to any section of these laws, shall mean the section next preceding or following that in which such reference is made, unless some other is expressly designated. See New Hampshire Revised Statutes 21:13
- Gift: A voluntary transfer or conveyance of property without consideration, or for less than full and adequate consideration based on fair market value.
- Marital deduction: The deduction(s) that can be taken in the determination of gift and estate tax liabilities because of the existence of a marriage or marital relationship.
- person: may extend and be applied to bodies corporate and politic as well as to individuals. See New Hampshire Revised Statutes 21:9
- Personal property: All property that is not real property.
- petition: when used in connection with the equity jurisdiction of the superior court, and referring to a document filed with the court, shall mean complaint, and "petitioner" shall mean plaintiff. See New Hampshire Revised Statutes 21:51
- Real property: Land, and all immovable fixtures erected on, growing on, or affixed to the land.
- Remainder: An interest in property that takes effect in the future at a specified time or after the occurrence of some event, such as the death of a life tenant.
- Trustee: A person or institution holding and administering property in trust.
(2) The trustee gives written notice of the trustee’s intention to convert the trust into a unitrust and of how the unitrust will operate, including what initial decisions the trustee will make under this section, to all the qualified beneficiaries, as defined in N.H. Rev. Stat. § 564-B:1-103(12) and including the director of charitable trusts if, with respect to the trust, the director has the right of a “qualified beneficiary” under N.H. Rev. Stat. § 564-B:1-110(c).
(3) No qualified beneficiary objects to the conversion to a unitrust in a writing delivered to the trustee within 60 days of the mailing of the notice under subparagraph (a)(2).
(b)(1) The trustee may petition the court to approve the conversion to a unitrust if a qualified beneficiary timely objects to the conversion of the unitrust.
(2) A qualified beneficiary may request a trustee to convert to a unitrust. If the trustee does not convert, the beneficiary may petition the court to order the conversion.
(3) The court shall approve the conversion or direct the requested conversion if the court concludes that the conversion will enable the trustee to better carry out the intent of the settlor and the purposes of the trust.
(c) In deciding whether to exercise the power conferred by paragraph (a), a trustee may consider, among other things, all of the following:
(1) the size of the trust;
(2) the nature and estimated duration of the trust;
(3) the liquidity and distribution requirements of the trust;
(4) the needs for regular distributions and preservation and appreciation of capital;
(5) the expected tax consequences of the conversion;
(6) the assets held in the trust; the extent to which they consist of financial assets; interests in closely held enterprises, tangible and intangible personal property or real property; and the extent to which an asset is used by a beneficiary;
(7) to the extent reasonably known to the trustee, the needs of the beneficiaries for present and future distributions authorized or required by the terms of the trust;
(8) whether and to what extent the terms of the trust gives the trustee the power to invade principal or accumulate income or prohibits the trustee from invading principal or accumulating income and the extent to which the trustee has exercised a power from time to time to invade principal or accumulate income; and
(9) the actual and anticipated effect of economic conditions on principal and income and effects of inflation and deflation.
(d) After a trust is converted to a unitrust, all of the following apply:
(1) The trustee shall follow an investment policy seeking a total return for the investments held by the trust, whether the return is to be derived:
(A) from appreciation of capital;
(B) from earnings and distributions from capital; or
(C) from both.
(2) The trustee shall make regular distributions in accordance with the governing instrument construed in accordance with the provisions of this section.
(3) Under the terms of the trust, the term “income” shall mean an annual distribution (the unitrust distribution) equal to not less than 3 percent nor more than 5 percent (the payout percentage) of the net fair market value of the trust’s assets as determined at the end of the calendar year, whether such assets would be considered income or principal under other provisions of this chapter, averaged over the lesser of:
(A) The 3 preceding years; or
(B) The period during which the trust has been in existence.
(e) The trustee may in the trustee’s discretion from time to time determine all of the following:
(1) The effective date of a conversion to a unitrust.
(2) The provisions for prorating a unitrust distribution for a short year in which a beneficiary’s right to payments commences or ceases.
(3) The frequency of unitrust distributions during the year.
(4) The effect of other payments from or contributions to the trust on the trust’s valuation.
(5) How frequently to value nonliquid assets and whether to estimate their value.
(6) Whether to omit from the calculations trust property occupied or possessed by a beneficiary.
(7) Any other matters necessary for the proper functioning of the unitrust.
(f)(1) Expenses which would be deducted from income if the trust were not a unitrust may not be deducted from the unitrust distribution.
(2) Unless otherwise provided by the governing instrument, the unitrust distribution shall be paid from net income, as such term would be determined if the trust were not a unitrust. To the extent net income is insufficient, the unitrust distribution shall be paid from net realized short-term capital gains. To the extent income and net realized short-term capital gains are insufficient, the unitrust distribution shall be paid from net realized long-term capital gains. To the extent income and net realized short-term and long-term capital gains are insufficient, the unitrust distribution shall be paid from the principal of the trust.
(g) The trustee or, if the trustee declines to do so, a beneficiary may petition the court to:
(1) select a payout percentage different than 3 to 5 percent;
(2) provide for a distribution of net income, as would be determined if the trust were not a unitrust, in excess of the unitrust distribution if such distribution is necessary to preserve a tax benefit;
(3) average the valuation of the trust’s net assets over a period other than 3 years; or
(4) Reconvert from a unitrust.
(h) A conversion to a unitrust does not affect a term of the trust directing or authorizing the trustee to distribute principal or authorizing a beneficiary to withdraw a portion or all of the principal.
(i) A trustee may not convert a trust into a unitrust in any of the following circumstances:
(1) If payment of the unitrust distribution would change the amount payable to a beneficiary as a fixed annuity or a fixed fraction of the value of the trust assets.
(2) If the unitrust distribution would be made from any amount which is permanently set aside for charitable purposes under the terms of the trust and for which a federal estate or gift tax deduction has been taken, unless both income and principal are so set aside.
(3) If:
(A) Possessing or exercising the power to convert would cause an individual to be treated as the owner of all or part of the trust for federal income tax purposes; and
(B) The individual would not be treated as the owner if the trustee did not possess the power to convert.
(4) If:
(A) possessing or exercising the power to convert would cause all or part of the trust assets to be subject to federal estate or gift tax with respect to an individual; and
(B) the assets would not be subject to federal estate or gift tax with respect to the individual if the trustee did not possess the power to convert.
(5) If the conversion would result in the disallowance of a federal estate tax or gift tax marital deduction which would be allowed if the trustee did not have the power to convert.
(6) If the trustee is a beneficiary of the trust.
(j)(1) If subparagraph (i)(3), (i)(4), or (i)(6) applies to a trustee and there is more than one trustee, a cotrustee to whom the provision does not apply may convert the trust, unless the exercise of the power by the remaining trustee or trustees is prohibited by the terms of the trust.
(2) If subparagraph (i)(3), (i)(4), or (i)(6) applies to all the trustees, the trustees may petition the court to direct a conversion.
(k) A trustee may permanently release the power conferred by paragraph (a) or may release the power conferred by paragraph (a) for a specified period including a period measured by the life of an individual to convert to a unitrust if any of the following apply:
(1) The trustee is uncertain about whether possessing or exercising the power will cause a result described in subparagraph (i)(3), (i)(4), or (i)(5).
(2) The trustee determines that possessing or exercising the power will or may deprive the trust of a tax benefit or impose a tax burden not described in paragraph (i).
(l) For the purposes of this section, a person may represent and bind another person in accordance with Article 3 of RSA 564-B.
(m) Any trustee or disinterested person who in good faith takes or fails to take any action under this section shall not be liable to any person affected by such action or inaction, regardless of whether such person received written notice as provided in this section and regardless of whether such person was under a legal disability at the time of the delivery of such notice. Such person’s exclusive remedy shall be to obtain an order of the court directing the trustee to convert an income trust to a unitrust, to reconvert from a unitrust to an income trust, or to change the percentage used to calculate the unitrust amount.
(n) This section shall be construed as pertaining to the administration of a trust and shall be available to any trust that is administered in New Hampshire or that is governed by the laws of this section unless:
(1) the terms of the trust reflect an intention that the current beneficiary or beneficiaries are to receive an amount other than a reasonable current return from the trust;
(2) the trust is a trust having a guaranteed annuity interest or fixed percentage interest as described in section 170(f)(2)(B) of the Internal Revenue Code, a pooled income fund (within the meaning of section 642(c)(5) of the Internal Revenue Code), a charitable remainder trust (within the meaning of section 664(d) of the Internal Revenue Code), a qualified subchapter S trust (within the meaning of section 1361(c) of the Internal Revenue Code), a personal residence trust (within the meaning of section 2702(a)(3)(A) of the Internal Revenue Code), or a trust in which one or more settlors retained a qualified interest (within the meaning of section 2702(b) of the Internal Revenue Code);
(3) one or more persons to whom the trustee could distribute income have a power of withdrawal over the trust that is not subject to an ascertainable standard or that can be exercised to discharge a duty of support he or she possesses; or
(4) the terms of the trust expressly prohibit the use of this section by specific reference to the chapter or expressly states the settlor’s intent that net income not be calculated as a unitrust amount.