HCS HB 241 -- TRUSTS SPONSOR: Smith COMMITTEE ACTION: Voted "do pass" by the Committee on Civil and Administrative Law by a vote of 9 to 0. This substitute revises the law governing principal and income in the administration of trusts. The substitute: (1) Redefines the standards and processes used to determine which parts of a trust constitute principal and which constitute income from that principal, as well as trustees' obligations in administering those trusts; (2) Allows trustees discretion in adjusting the trust portfolio, to do what is fair and reasonable to all beneficiaries, absent clear intent in the trust to the contrary, in accordance with the Prudent Investor Act; (3) Adopts and sets the "unitrust amount" (the default mechanism used to determine how much of a portfolio to count as income) at 3%; (4) Repeals the rule against perpetuities as it applies to trusts, under certain conditions; and (5) Reduces the statute of limitations, from 5 years to 2 years, for claims of breach of trust resulting from a trustee's allocation of income and principal. FISCAL NOTE: No impact on state funds. PROPONENTS: Supporters say that the bill is a uniform act, being adopted throughout the country, which revises many outdated fiduciary accounting rules and methods. The bill is needed to bring the chapter up to date with changes in the federal income tax code and to make it consistent with the Prudent Investor Act, enacted in 1996. The current law was enacted in 1983, and there have been a myriad of changes in the financial world and accounting methods since that time. The common law Rule Against Perpetuities (as it is applied to trusts) has been repealed in 14 states already to avoid huge tax implications from the federal "generation-skipping tax." As a result, Missouri trusts companies and attorneys have been losing trust business to those other states. Testifying for the bill were Representative Smith; Missouri Bar; and Missouri Bankers Association. OPPONENTS: There was no opposition voiced to the committee. Richard Smreker, Senior Legislative AnalystCopyright (c) Missouri House of Representatives