Chapter 17. General Fiduciary Relations.
Subchapter I. Uniform Fiduciaries Act.
§ 21–1701. Definitions.
(a) In this chapter unless the context otherwise requires:
“bank” includes a person or association of persons, whether incorporated or not, carrying on the business of banking;
“fiduciary” includes a trustee under a trust, express, implied, resulting or constructive, executor, administrator, guardian, conservator, curator, receiver, trustee in bankruptcy, assignee for the benefit of creditors, partner, agent, officer of a corporation, public or private, public officer, or other person acting in a fiduciary capacity for a person, trust, or estate;
“person” includes a corporation, partnership, or other association, or two or more persons having a joint or common interest;
“principal” includes a person to whom a fiduciary as such owes an obligation.
(b) A thing is done “in good faith” within the meaning of this chapter, when it is in fact done honestly, whether negligently or not.
§ 21–1702. Application of payment made to fiduciaries.
A person who in good faith pays or transfers to a fiduciary money or other property which the fiduciary as such is authorized to receive, is not responsible for the proper application thereof by the fiduciary; and any right or title acquired from the fiduciary in consideration of the payment or transfer is not invalid in consequence of a misapplication by the fiduciary.
§ 21–1703. Transfer of negotiable instruments by fiduciary.
If a negotiable instrument payable or indorsed to a fiduciary as such is indorsed by the fiduciary, or if a negotiable instrument payable or indorsed to his principal is indorsed by a fiduciary empowered to indorse the instrument on behalf of his principal, the indorsee is not bound to inquire whether the fiduciary is committing a breach of his obligation as fiduciary in indorsing or delivering the instrument, and is not chargeable with notice that the fiduciary is committing a breach of his obligation as fiduciary unless he takes the instrument with actual knowledge of the breach or with knowledge of such facts that his action in taking the instrument amounts to bad faith. If, however, the instrument is transferred by the fiduciary in payment of or as security for a personal debt of the fiduciary to the actual knowledge of the creditor, or is transferred in a transaction known by the transferee to be for the personal benefit of the fiduciary, the creditor or other transferee is liable to the principal if the fiduciary in fact commits a breach of his obligation as fiduciary in transferring the instrument.
§ 21–1704. Check drawn by fiduciary payable to third person.
If a check or other bill of exchange is drawn by a fiduciary as such, or in the name of his principal by a fiduciary empowered to draw such an instrument in the name of his principal, the payee is not bound to inquire whether the fiduciary is committing a breach of his obligation as fiduciary in drawing or delivering the instrument, and is not chargeable with notice that the fiduciary is committing a breach of his obligation as fiduciary unless he takes the instrument with actual knowledge of the breach or with knowledge of facts that his action in taking the instrument amounts to bad faith. Where, however, the instrument is payable to a personal creditor of the fiduciary and delivered to the creditor in payment of or as security for a personal debt of the fiduciary to the actual knowledge of the creditor, or is drawn and delivered in a transaction known by the payee to be for the personal benefit of the fiduciary, the creditor or other payee is liable to the principal if the fiduciary in fact commits a breach of his obligation as fiduciary in drawing or delivering the instrument.
§ 21–1705. Check drawn by and payable to fiduciary.
If a check or other bill of exchange is drawn by a fiduciary as such or in the name of his principal by a fiduciary empowered to draw such an instrument in the name of his principal, payable to the fiduciary personally, or payable to a third person and by him transferred to the fiduciary, and is thereafter transferred by the fiduciary, whether in payment of a personal debt of the fiduciary or otherwise, the transferee is not bound to inquire whether the fiduciary is committing a breach of his obligation as fiduciary in transferring the instrument, and is not chargeable with notice that the fiduciary is committing a breach of his obligations as fiduciary unless he takes the instrument with actual knowledge of the breach or with knowledge of facts that his action in taking the instrument amounts to bad faith.
§ 21–1706. Deposit in name of fiduciary as such.
If a deposit is made in a bank to the credit of a fiduciary as such, the bank is authorized to pay the amount of the deposit or any part thereof upon the check of the fiduciary, signed with the name in which the deposit is entered, without being liable to the principal, unless the bank pays the check with actual knowledge that the fiduciary is committing a breach of his obligation as fiduciary in drawing the check or with knowledge of facts that its action in paying the check amounts to bad faith. If, however, the check is payable to the drawee bank and is delivered to it in payment of or as security for a personal debt of the fiduciary to it, the bank is liable to the principal if the fiduciary in fact commits a breach of his obligation as fiduciary in drawing or delivering the check.
§ 21–1707. Deposit in name of principal; check drawn thereon by fiduciary; check payable to drawee bank.
If a check is drawn upon a bank account of his principal by a fiduciary who is empowered to draw checks upon his principal’s account, the bank is authorized to pay the checks without being liable to the principal, unless the bank pays the check with actual knowledge that the fiduciary is committing a breach of his obligation as fiduciary in drawing the check, or with knowledge of facts that its action in paying the check amounts to bad faith. If, however, the check is payable to the drawee bank and is delivered to it in payment of or as security for a personal debt of the fiduciary to it, the bank is liable to the principal if the fiduciary in fact commits a breach of his obligation as fiduciary in drawing or delivering the check.
§ 21–1708. Conforming amendment.
When a fiduciary deposits in a bank to his personal credit checks:
(1) drawn by him upon an account in his own name as fiduciary; or
(2) payable to him as fiduciary; or
(3) drawn by him upon an account in the name of his principal if he is empowered to draw checks thereon; or
(4) payable to his principal and indorsed by him, if he is empowered to indorse such checks —
or if he otherwise deposits funds held by him as fiduciary, the bank has notice of the breach of fiduciary duty if the instrument is deposited to an account other than an account of the fiduciary, as such, or an account of the represented person.
§ 21–1709. Deposit in names of two or more trustees.
When a deposit is made in a bank in the name of two or more persons as trustees and a check is drawn upon the trust account by any trustee authorized by the others to draw checks upon the trust account, neither the payee nor other holder nor the bank is bound to inquire whether it is a breach of trust to authorize the trustee to draw checks upon the trust account, and is not liable unless the circumstances be such that the action of the payee or other holder or the bank amounts to bad faith.
§ 21–1710. Law not retroactive.
This chapter does not apply to transactions that took place prior to May 14, 1928.
§ 21–1711. Cases not provided for by chapter.
In a case not provided for by this chapter the rules of law and equity, including the law merchant and those rules of law and equity relating to trusts, agency, negotiable instruments, and banking, continue to apply.
§ 21–1712. Short title.
This subchapter may be cited as the “Uniform Fiduciaries Act”.
Subchapter II. General Provisions.
§ 21–1721. Investment of trust assets. [Repealed]
Repealed.
§ 21–1722. Prohibition from exercising powers conferred upon trustee.
(a) For purposes of this section, the term:
(1) “Adverse party” shall have the same meaning as construed under § 672 of the Internal Revenue Code and the regulations promulgated thereunder.
(2) “Ascertainable standard relating to the trustee’s health, education, support, and maintenance” shall have the same meaning as construed under §§ 2041 and 2514 of the Internal Revenue Code and the regulations promulgated thereunder.
(3) “Internal Revenue Code” means the Internal Revenue Code of 1986, approved October 22, 1986 (100 Stat. 2085; 26 U.S.C. § 1 et seq.).
(4) “Parties in interest” means:
(A) Each trustee then serving; and
(B) Each beneficiary then in existence or, if the beneficiary has not attained the age of majority or is otherwise incapacitated, the beneficiary’s parent or legal representative under applicable law or the beneficiary’s attorney-in-fact under a durable power of attorney.
(5) “Party who is not related or subordinate” shall have the same meaning as construed under § 672 of the Internal Revenue Code and the regulations promulgated thereunder.
(b)(1) None of the following powers conferred upon a trustee by the governing instrument may be exercised by the trustee:
(A) The power to make any discretionary distributions of either principal or income to or for the benefit of the trustee in the trustee’s individual capacity, unless limited by an ascertainable standard relating to the trustee’s health, education, support, and maintenance; or
(B) The power to make any discretionary distributions of either principal or income to satisfy any of the trustee’s legal obligations in the trustee’s individual capacity for support.
(2) If a trustee is prohibited by subsection (b)(1) of this section from exercising a power conferred upon the trustee, the trustee may nevertheless exercise the power, except that the trustee’s exercise of that power shall be limited by an ascertainable standard relating to the trustee’s health, education, support, and maintenance.
(c) If (1) a power described in subsection (b) of this section is exercisable in favor of a beneficiary, and (2) a power is conferred on that beneficiary to remove or replace the trustee, the beneficiary may exercise the power only to replace the trustee with a person who is either an adverse party or a party who is not related or subordinate.
(d) If the governing instrument contains a power described under subsection (b) of this section and there is no trustee who can exercise the power, the trustee then serving may appoint a special trustee who is either an adverse party or a party who is not related or subordinate to exercise the power. If the trustee fails to appoint a special trustee, upon application of any party in interest, a court may appoint a special trustee who is not disqualified under this subsection to exercise the power during the period of time that the court designates.
(e) This section shall not apply to a trust if and to the extent that:
(1) The trust qualifies for and claims the estate or gift tax marital deduction under § 2056 or § 2523 of the Internal Revenue Code;
(2) The trust is revocable or amendable at the time of the exercise of the power; or
(3) Contributions to the trust qualify for the annual exclusion under § 2503(c) of the Internal Revenue Code.
(f)(1) Subject to subsection (e) of this section, this section applies to:
(A) Any trust created under a governing instrument executed after the effective date of this section, unless the governing instrument provides expressly that this section shall not apply; and
(B) Any trust created under a governing instrument executed before the effective date of this section [April 3, 2001], unless all parties in interest elect affirmatively not to be subject to this section on or before the later of:
(i) Three years after the effective date of this section; or
(ii) Three years after the date on which the trust becomes irrevocable.
(2) Reserved.
(3) The election required under paragraph (1) of this subsection shall be made by a written declaration signed by the parties in interest and delivered to the trustee.
