D R A F T
FOR DISCUSSION ONLY
HARMONIZED
UNIFORM STATUTORY TRUST ENTITY ACT
(Amendments to Uniform Statutory Trust Entity Act)
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
MEETING
IN ITS ONE-HUNDRED-AND-NINETEENTH YEAR
CHICAGO, ILLINOIS
JULY 9 - JULY 16,
2010
HARMONIZED
UNIFORM STATUTORY TRUST ENTITY ACT
(Amendments to Uniform Statutory Trust Entity Act)
WITH REPORTERS’
NOTES
Copyright 82010
By
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
The ideas and conclusions
set forth in this draft, including the proposed statutory language and any
comments or reporter=s notes, have not been passed upon by the National
Conference of Commissioners on Uniform State Laws or the Drafting
Committee. They do not necessarily
reflect the views of the Conference and its Commissioners and the Drafting
Committee and its Members and Reporter.
Proposed statutory language may not be used to ascertain the intent or
meaning of any promulgated final statutory proposal.
DRAFTING COMMITTEE
ON HARMONIZATION OF BUSINESS ENTITY ACTS
The Committee appointed by and
representing the National Conference of Commissioners on Uniform State Laws in
preparing this Act consists of the following individuals:
HARRY J.
HAYNSWORTH, 2200 IDS Center, 80 S. 8th St., Minneapolis, MN 55402, Chair
WILLIAM H. CLARK,
One Logan Square, 18th and Cherry Sts., Philadelphia, PA 19103-6996
ANN E. CONAWAY,
Widener University School of Law, 4601 Concord Pike, Wilmington, DE 19803
THOMAS E. GEU, University
of South Dakota School of Law, 414 Clark St., Suite 214, Vermillion, SD
57069-2390
DALE G. HIGER, 1302
Warm Springs Ave., Boise, ID 83712
JAMES C. MCKAY, Office
of the Attorney General for the District of Columbia, 441 Fourth St. N.W., 6th
Floor South, Washington, DC 20001
MARILYN E. PHELAN,
Texas Tech University School of Law, 1802 Hartford Ave., Lubbock, TX 79409
WILLIAM J.
QUINLAN, Two First National Plaza, 20 S. Clark St., Suite 2900, Chicago, IL
60603
KEVIN P. SUMIDA, 735
Bishop St., Suite 411, Honolulu, HI 96813
JUSTIN L. VIGDOR,
2400 Chase Square, Rochester, NY 14604
DAVID S. WALKER, Drake
University Law School, 2507 University Ave., Des Moines, IA 50311
CARTER G. BISHOP,
Suffolk University Law School, 120 Tremont St., Boston, MA 02108-4977, Co-Reporter
DANIEL S.
KLEINBERGER, William Mitchell College of Law, 875 Summit Ave., St. Paul, MN
55105, Co-Reporter
EX OFFICIO
ROBERT A. STEIN, University
of Minnesota Law School, 229 19th Ave. S., Minneapolis, MN 55455, President
MARILYN E. PHELAN,
Texas Tech University School of Law, 1802 Hartford Ave., Lubbock, TX 79409,
Division Chair
AMERICAN BAR
ASSOCIATION ADVISOR
ROBERT R.
KEATINGE, 555 17th St., Suite 3200, Denver, CO 80202-3979, ABA Advisor
WILLIAM J.
CALLISON, 3200 Wells Fargo Center, 1700 Lincoln St., Denver, CO 80203, ABA Section Advisor
ALLAN G. DONN, One
Commercial Place, Suite 1800, Norfolk, VA 23510, ABA Section Advisor
WILLIAM S.
FORSBERG, 150 S. Fifth St., Suite 2300, Minneapolis, MN 55402-4238, ABA Section Advisor
BARRY B. NEKRITZ,
8000 Willis Tower, 233 S. Wacker Dr., Chicago, IL 60606, ABA Section Advisor
JAMES J. WHEATON,
222 Central Park Ave., Suite 2000, Virginia Beach, VA 23462, ABA Section Advisor
EXECUTIVE
DIRECTOR
JOHN A. SEBERT, 111
N. Wabash Ave., Suite 1010, Chicago, IL 60602, Executive Director
Copies of this Act may
be obtained from:
NATIONAL
CONFERENCE OF COMMISSIONERS
ON
UNIFORM STATE LAWS
111
N. Wabash Ave., Suite 1010
Chicago,
Illinois 60602
312/450-6600
www.nccusl.org
UNIFORM STATUTORY
TRUST ENTITY ACT
Approved and
Recommended, Santa Fe, New Mexico, July 15, 2009
The Committee appointed by and
representing the National Conference of Commissioners on Uniform State Laws in
preparing the Uniform Statutory
Trust Entity Act consists of the following individuals:
JUSTIN L. VIGDOR, 2400 Chase Square, Rochester, NY 14604, Chair
THOMAS J.
BUITEWEG, 121 W. Washington, Suite 300, Ann Arbor, MI 48104
ANN E. CONAWAY,
Widener University School of Law, 4601 Concord Pike, Wilmington, DE 19803
LANI LIU EWART,
1099 Alakea St., Suite 1800, Honolulu, HI 96813
THOMAS L. JONES,
University of Alabama School of Law, University Station, P.O. Box 865557,
Tuscaloosa, AL 35486‑0050
DIMITRI G.
KARCAZES, 55 E. Monroe St., Suite 3300, Chicago, IL 60603
JOHN H. LANGBEIN, Yale Law School, P.O. Box 208215, New
Haven, CT 06520-8215
L. GENE LEMON, 1136 W. Butler Dr., Phoenix, AZ 85021‑4428
HARRY M. WALSH, 456 Summit Ave. #206, St. Paul, MN 55102
ROBERT H.
SITKOFF, Harvard Law School, 1575 Massachusetts Ave., Cambridge, MA 02138, Reporter
EX OFFICIO
MARTHA LEE WALTERS, Oregon Supreme Court,
1163 State St., Salem, OR 97301-2563, President
ANNE L. MCGIHON, 837 Sherman St., Denver, CO
80203, Division Chair
AMERICAN BAR
ASSOCIATION ADVISOR
ELLISA OPSTBAUM
HABBART, 300 Martin Luther King Blvd., Suite 200, Wilmington, DE 19801, ABA Advisor
WILLIAM H. CLARK,
JR., One Logan Square, 18th and Cherry Streets, Philadelphia, PA 19103-6996, ABA Section Advisor
ROBERT R.
KEATINGE, 555 17th St., Suite 3200, Denver, CO 80202-3979, ABA Section Advisor
THOMAS E.
RUTLEDGE, 2000 PNC Plaza, 500 W. Jefferson St., Louisville, KY 40202-2874, ABA Section Advisor
EXECUTIVE
DIRECTOR
JOHN A. SEBERT,
111 N. Wabash Ave., Suite 1010, Chicago, IL 60602, Executive Director
HARMONIZED UNIFORM STATUTORY TRUST ENTITY ACT
(Amendments to Uniform Statutory Trust Entity Act)
TABLE OF CONTENTS
ARTICLE 1
GENERAL PROVISIONS
SECTION
102. DEFINITIONS. 1
SECTION
105. APPLICABILITY OF TRUST LAW. 4
SECTION
106. RULE OF CONSTRUCTION. 4
ARTICLE 2
FORMATION; CERTIFICATE OF TRUST AND OTHER FILINGS;
PROCESS
SECTION
201. CERTIFICATE OF TRUST. 5
ARTICLE 5
TRUSTEES AND TRUST MANAGEMENT
SECTION 506. GOOD-FAITH
RELIANCE. 6
SECTION
509. INDEMNIFICATION, ADVANCEMENT, AND
EXONERATION. 7
ARTICLE 6
BENEFICIARIES AND BENEFICIAL RIGHTS
SECTION
603. CONTRIBUTION BY BENEFICIAL OWNER. 8
SECTION
606. CHARGING ORDER. 10
HARMONIZED UNIFORM STATUTORY TRUST ENTITY ACT
(Amendments to Uniform Statutory Trust Entity Act)
* * *
SECTION 102. DEFINITIONS.
In this [act]:
(1) “Beneficial
owner” means the owner of a beneficial interest in a statutory trust or foreign
statutory trust.
(2) “Certificate
of trust” means the record filed by the [Secretary of State] under Section 201.
The term includes the record as amended or restated.
(3) “Common-law
trust” means a fiduciary relationship with respect to property arising from a
manifestation of intent to create that relationship and subjecting the person
that holds title to the property to duties to deal with the property for the
benefit of charity or for one or more persons, at least one of which is not the
sole trustee, whether the purpose of the trust is donative or commercial. The
term includes the type of trust known at common law as a “business trust”,
“Massachusetts trust”, or “Massachusetts business trust”.
(4) “Designated
office” means:
(A)
for a statutory trust, the street address that it is required to
designate under Section 201(b)(2); or
(B)
for a foreign statutory trust, its principal office.
(5) (4) “Foreign statutory trust” means a
trust that is formed under the laws of a jurisdiction other than this state
which would be a statutory trust if formed under the laws of this state.
(6) (5) “Governing instrument” means the trust
instrument and certificate of trust.
(7) (6)
“Jurisdiction”, used to refer to a political entity, means the United
States, a state, a foreign country, or a subdivision of a foreign country.
(8) (7)
“Person” means an individual, corporation, statutory trust, estate,
partnership, limited liability company, association, joint venture, public
corporation, government or governmental subdivision, agency, or instrumentality,
or any other legal or commercial entity. The term does not include a common-law
trust.
(9) (8)
“Property” means all property, whether real, personal, or mixed, or
tangible or intangible, or any interest therein.
(10) (9)
“Qualified foreign statutory trust” means a foreign statutory trust that
is registered to do business in this state pursuant to a certificate of
registration filed by the [Secretary of State].
(11) (10)
“Record”, used as a noun, means information that is inscribed on a
tangible medium or that is stored in an electronic or other medium and is
retrievable in perceivable form.
(12) (11)
“Related party”, with respect to a party that is a trustee, officer,
employee, manager, or beneficial owner, means:
(A)
the spouse of the party;
(B) a
child, parent, sibling, grandchild, or grandparent of the party, or the spouse
of one of them;
(C) an
individual having the same residence as the party;
(D) a
trust or estate of which a related party described in subparagraph (A), (B), or
(C) is a substantial beneficiary;
(E) a
trust, estate, legally incapacitated individual, conservatee, or minor for
which the party is a fiduciary; or
(F) a person that directly or indirectly
controls, is controlled by, or is under common control with, the party.
(13) (12)
“Series trust” means a statutory trust that has one or more series
created under Section 401.
(14) (13)
“Sign” means, with the present intent to authenticate or adopt a record:
(A) to
execute or adopt a tangible symbol; or
(B) to
attach to or logically associate with the record an electronic symbol, sound,
or process.
(15) (14)
“State” means a state of the United States, the District of Columbia,
Puerto Rico, the United States Virgin Islands, or any territory or insular
possession subject to the jurisdiction of the United States.
(16) (15)
“Statutory trust”, except in the phrase “foreign statutory trust”, means
an entity formed under this [act].
(17) (16)
“Trust” includes a common-law trust, statutory trust, and foreign
statutory trust.
(18) (17)
“Trust instrument” means a record other than the certificate of trust
which provides for the governance of the affairs of a statutory trust and the
conduct of its business. The term includes a trust agreement, a declaration of
trust, and bylaws.
(19) (18)
“Trustee” means a person designated, appointed, or elected as a trustee
of a statutory trust or foreign statutory trust in accordance with the
governing instrument or applicable law.
Reporters’ Notes
In
contrast with RUPA, ULPA, and Re-ULLCA, USTEA does not define “contribution” or
“distribution” or “transferee”.
Former Section 102(4)[designated office]
– Deleted in recognition that it is no longer appropriate to require a domestic
entity to have an office, in addition to a registered agent, within the state.
* *
*
(TEXT INCLUDED FOR INFORMATIONAL PURPOSES)
SECTION 105. APPLICABILITY
OF TRUST LAW.
The law of this state pertaining to common-law trusts supplements this
[act]. However, a governing instrument may supersede
or modify application to the statutory trust of any
law of this state pertaining to common-law
trusts.
Reporters’ Notes
As
indicated by this section and section 106(a), USTEA reflects an amalgam of
trust and contract concepts – a situation to keep in mind when making
harmonization decisions.
(a) This [act]
must be liberally construed to give maximum effect to the principle of freedom
of contract and to the enforceability of governing instruments.
(b) The presumption that a civil statute in
derogation of the common law is construed strictly does not apply to this [act].
Reporters’ Notes
Subsection (a) states a proposition
that was considered at length and rejected by the drafting committees for ULPA
and Re-ULLCA.
(a) To form a statutory trust, a person must
deliver a certificate of trust to the [Secretary of State] for filing.
(b) A certificate of trust must state:
(1) the name of the statutory trust, which must
comply with Section 207;
(2) the street and mailing address of the
designated office of the trust;
(3) the name and street and mailing address of
the initial agent of the trust for service of process; and
(4)
(3)
if the trust may have one or more series, a statement to that effect.
(c) A certificate of trust may contain any term
in addition to those required by subsection (b).
(d) Subject to Section 204(c), a statutory trust
is formed when a certificate of trust that complies with subsection (b) is
filed by the [Secretary of State].
(e) A filed certificate of trust, a filed
statement of cancellation or change, or filed articles of conversion or merger
prevail over inconsistent terms of a trust instrument.
Reporters’ Notes
Subsection
(b) – The deletion follows from the decision not to require an
in-state office.
Subsection (e) – Note the sharp
difference between this rule and the rule created in ULLCA and followed in ULPA
(2001) and Re-ULLCA. See, e.g., Re-ULLCA,
§ 112(d), which provides in pertinent part:
…. if
a record that has been delivered by a limited liability company to the
[Secretary of State] for filing and has become effective under this [act]
conflicts with a provision of the operating agreement:
(1) the operating
agreement prevails as to members, dissociated members, transferees, and
managers; and
(2)
the record prevails as to other persons to the extent they reasonably rely on
the record.
*
* *
* * *
(TEXT
INCLUDED FOR INFORMATIONAL PURPOSES)
SECTION 506. GOOD-FAITH RELIANCE. A trustee, officer, employee, manager,
or committee of a statutory trust, or other person designated pursuant to
Section 103(e)(8), is not liable to the trust or to a beneficial owner for
breach of any duty, including a fiduciary duty, to the extent the breach
results from good-faith reliance on:
(1) a term of the governing instrument;
(2) a record of the statutory trust; or
(3) an opinion, report, or statement of another
person that the person to which the opinion, report, or statement is made or delivered
reasonably believes is within the other person’s professional or expert
competence and is made or delivered to the trustee, officer, employee, manager,
or committee of a statutory trust, or other person designated pursuant to
Section 103(e)(8).
Reporters’
Notes
Section 506(1) – Under this provision, a
trustee who breaches a duty escapes liability if the breach was based on an
erroneous but good faith interpretation of the governing instrument. This
approach differs sharply from the law of limited liability companies and
limited partnerships and, in particular, from RUPA, ULLCA, ULPA (2001), and
Re-ULLCA.
*
* *
(TEXT INCLUDED FOR INFORMATIONAL PURPOSES)
(a) A statutory trust may indemnify and hold
harmless a trustee, beneficial owner, or other person with respect to any claim
or demand against the person by reason of the person’s relationship with the
trust if the claim or demand does not arise from the person’s bad faith, willful
misconduct, or reckless indifference.
(b) Expenses, including reasonable attorney’s
fees and costs, incurred by a trustee, beneficial owner, or other person in
connection with a claim or demand against the person by reason of the person’s
relationship to a statutory trust may be paid by the trust before the final
disposition of the claim or demand, upon an undertaking by or on behalf of the
person to repay the trust if the person is ultimately determined not to be
entitled to be indemnified under
subsection (a).
(c) A term in the governing instrument relieving
or exonerating a trustee from liability is unenforceable to the extent it
relieves or exonerates the trustee from liability for conduct involving bad
faith, willful misconduct, or reckless indifference.
Reporters’
Notes
Subsection
(a) –Re-ULLCA, ULPA
(2001), and RUPA all provide a default rule requiring indemnification. Re-ULLCA
and ULPA (2001) also authorize the purchasing of insurance.
Subsection
(b) – Compare HULLCA, §
408(c), which states the proposition in the active voice. That provision also reflects a decision by
the Committee on Style to substitute “promise” for “undertaking”.
Subsection (c) – Compare
the more specific constraints stated in HULLCA, § 110(f):
(f) The operating agreement may alter or
eliminate the indemnification for a member or manager provided by Section
408(a) and may eliminate or limit a member or manager’s liability to the
limited liability company and members for money damages, whether directly or
by providing indemnification therefor, except for:
(1) breach
of the duty of loyalty;
(2) a
financial benefit received by the member or manager to which the member or
manager is not entitled;
(3) a
breach of a duty under Section 406;
(4) intentional
infliction of harm on the company or a member; or
(5) an intentional
violation of criminal law.
*
* *
* * *
(a) A contribution of a beneficial owner to a
statutory trust may be in cash, property, or services rendered or a promissory
note or other obligation to contribute cash or property or to perform services.
A contribution may
consist of property or other benefit to a limited liability company, including
money, services performed, promissory notes, other agreements to contribute
money or property, and contracts for services to be performed. A person may become a beneficial owner
of a statutory trust and may receive a beneficial interest in a statutory trust
without making a contribution or being obligated to make a contribution to the
trust.
(b) A beneficial owner is liable to the statutory
trust for failure to perform an obligation to contribute cash or property or to
perform services, even if the beneficial owner is unable to perform because of
death, disability, or any other reason. If a beneficial owner does not make the
required contribution of cash, property, or services, the beneficial owner is
obligated, at the option of the trust, to contribute cash equal to that part of
the value of the contribution that has not been made. This obligation is in
addition to any other right, including the right to specific performance, that
the trust has against the beneficial owner under the governing instrument or
applicable law.
(c) The governing instrument may provide that a
beneficial owner that fails to make a required contribution, or comply with the
terms and conditions of the governing instrument, is subject to specified
penalties for or consequences of the failure, including:
(1) reduction or elimination of the defaulting
beneficial owner’s proportionate interest in the statutory trust or series
thereof;
(2) subordination of the defaulting beneficial
owner’s beneficial interest to that of nondefaulting beneficial owners;
(3) forced sale or forfeiture of the defaulting
beneficial owner’s beneficial interest;
(4) imposition of an obligation to repay a loan
to the statutory trust by another beneficial owner of the amount necessary to
meet the defaulting beneficial owner’s commitment; (5)
redemption or sale of the defaulting beneficial owner’s beneficial
interest at a
value fixed by appraisal or by formula;
and
(6) specific performance of an obligation under
the governing instrument.
Reporters’
Notes
Subsection (b) –
Other entity acts provide that a
compromise of a contribution obligation does not affect the rights of creditors
who extended credit in reliance on the original obligation. See, e.g., HULLCA, § 403(b): “A creditor of a limited liability
company which extends credit or otherwise acts in reliance on an obligation
described in subsection (a) without notice of any compromise under this
subsection may enforce the obligation.”
Subsection (c) – This list of remedies differs
substantially from the comparable provisions of the other entity acts. Particularly noteworthy: condoning the
imposition of “penalties”.
Subsection (c)(3) – Note “forfeiture”
and query whether the intent or effect is to relieve the law’s general disfavor
of forfeiture.
Absence of distribution recapture provisions
– Unlike ULLCA, ULPA (2001), Re-ULLCA, and HUPA, USTEA does not provide for the
recapture of distributions made while the entity is insolvent.
* * *
(a) If a beneficial interest is not freely
transferable by a beneficial owner so that the
transferee has all rights of the
transferor, a judgment creditor of a beneficial owner may, in the capacity
of judgment creditor, satisfy the judgment against the beneficial owner’s
beneficial interest only as provided in this section.
(b) On application by a judgment creditor of a
beneficial owner, the [appropriate court] may issue enter a
charging order against the beneficial owner’s right to distributions from the
trust for the unsatisfied part amount of the judgment. and: A charging order constitutes a lien on the beneficial
owner’s right to distributions and requires the limited liability company to
pay over to the person to which the charging order was issued any distribution
that would otherwise have been paid to the beneficial owner.
(c) To the extent necessary to effectuate the
collection of distributions pursuant to a charging order in effect under
subsection (b), the court may:
(1) appoint a receiver of the distributions
subject to the charging order, with the power to enforce the beneficial
owner’s right to a distribution make all inquiries the beneficial owner may
have made; and
(2) make all other orders necessary to
give effect to the charging order.
(c) A charging order issued under subsection (b)
is a lien on the beneficial owner’s right to distributions and requires the
statutory trust to pay over to the judgment creditor any distribution that
would otherwise be paid to the beneficial owner until the judgment has been
satisfied.
(d) Upon a showing that distributions under
a charging order will not pay the judgment debt within a reasonable time, the
court may foreclose the lien and order the sale of the beneficial owner’s
rights to distribution from the trust.
The purchaser at the foreclosure sale obtains only those rights and does
not thereby become a beneficial owner.
(e) At any
time before foreclosure under subsection (d), the beneficial owner whose rights
to distributions are subject to a charging order under subsection (b) may
extinguish the charging order by satisfying the judgment and filing a certified
copy of the satisfaction with the court that issued the charging order.
(d)
(f) At any time before foreclosure under subsection (d), A a statutory trust or a beneficial
owner that is owner whose rights to distributions are not subject
to a charging order issued under subsection (b) may pay to the judgment
creditor the full amount due under the judgment lien and thereby succeed to the
rights of the judgment creditor, including the charging order.
(e)
(g) This [act] does not deprive a
beneficial owner or a transferee of the beneficial interest of any exemption
applicable to
the beneficial interest.
Reporters’
Notes
Generally, this
section has been conformed to the template that evolved through RUPA, ULLCA,
ULPA (2001) and Re-ULLCA. However, even
as revised, this section does not expressly extend the charging order remedy to
transferees of a beneficial owner’s beneficial interest. But see
subsection (e), which refers to “transferee”.
Note also that USTEA does not define “transferee”.
Subsection
(a) – Addition
necessary for harmonization and to avoid appearing to override the rights of
secured creditors. Query whether a
charging order is available when the beneficial interest is freely
transferable.
Subsection (b) – Second sentence
relocated from former subsection (c) for the sake of harmonization.
Subsection (c)(1) – Consistent with
Re-ULLCA, the revised language narrows the court’s powers, to avoid a judgment
creditor having standing to claim that the trust should make a distribution.
Subsection (d) – The foreclosure remedy has been part of the
Conference’s approach to unincorporated business entities since 1914. See
UPA § 28. Eliminating foreclosure:
·
tips the balance inordinately away from
the rights of legitimate creditors of beneficial owners and in favor of those
seeking primarily to “protect assets;”
·
creates a major “dis-harmony” among the
Conference business entity acts; and
·
is all the more remarkable in a statute
that, absent a contrary agreement, has free transferability of ownership
interests.
Subsection (f) – The
phrase “a charging order issued under subsection (b)” is probably superior to
the Re-ULLCA formulation (“the charging order”).