SB 562 — Relating to operation of private trust companies in WV

(5)(E) The estate of a family member or the estate of an individual who is not a family member if all of the noncharitable beneficiaries of such estate are family members, except that an estate composed exclusively of nonindividual beneficiaries is considered to be a family member if all of the nonindividual beneficiaries are charitable foundations or other charitable entities as described in subdivisionparagraph (6);(F) of this subdivision;

or (6)(F) A charitable foundation or other charitable entity that eithereither: (A) was created by a family member, or (B) has a governing body consisting mostly of family members.

(k)(i) "Fiduciary"was meanscreated executor,by administrator,a conservator,family guardian,member, committee, or trustee.(ii) has a governing body consisting mostly of family members.

(l)(10) "Licensed"Fiduciary" private trust company" means aexecutor, privateadministrator, trustconservator, companyguardian, thatcommittee, operates in accordance with this chapter and has been issued a license that has not been revoked or suspendedtrustee. by the State Auditor.

(m)(11) "Lineal"Licensed kinship"private trust company" means a familyprivate membertrust whocompany isthat operates in theaccordance directwith linethis ofarticle ascentand orhas descentbeen fromissued a designatedlicense relative.that has not been revoked or suspended by the State Auditor.

(n)(12) "Officer""Lineal ofkinship" a family affiliate means an individual, regardless of whether the individual has an official title or receives a salaryfamily ormember other compensation, who mayis participate in the majordirect policymakingline functions of aascent familyor affiliate,descent otherfrom than as a director.designated relative.

The(13) term"Officer" doesof nota includefamily anaffiliate individualmeans whoan mayindividual, haveregardless anof officialwhether titlethe andindividual exercisehas discretionan inofficial thetitle performanceor ofreceives dutiesa andsalary functions,or butother compensation, who doesmay not participate in determining the major policiespolicymaking functions of thea family affiliateaffiliate, and whose decisions are limited by policy standards established by other officers,than regardlessas ofa whetherdirector. the policy standards have been adopted by the board of directors or other members of management.

The chairterm ofdoes thenot boardinclude ofan directors,individual thewho president,may thehave chiefan officer,official thetitle chiefand financialexercise Intrdiscretion SBin 562 2023R3454S 2023R3271H officer, the seniorperformance trust officer, and all executive vice presidents of aduties family affiliate, and all4 managersCS iffor organizedSB as562 afunctions, limitedbut liabilitywho company,does arenot presumedparticipate toin bedetermining officersthe unlessmajor suchpolicies officer is excluded by resolution of the boardfamily ofaffiliate directorsand orwhose membersdecisions orare limited by thepolicy bylawsstandards orestablished operatingby agreement of the family affiliate, other thanofficers, inregardless the capacity of awhether director,the frompolicy participatingstandards inhave majorbeen policymakingadopted functionsby of the familyboard affiliate,of anddirectors suchor excludedother officermembers doesof notmanagement. actually participate therein.

(o)The "Operatingchair plan"of meansthe aboard planof thatdirectors, establishesthe president, the policieschief officer, the chief financial officer, the senior trust officer, and proceduresall executive vice presidents of a privatefamily trustaffiliate, companyand willall havemanagers inif effectorganized whenas a limited liability company, are presumed to be officers unless such officer is excluded by resolution of the institutionboard opensof fordirectors businessor members or by the bylaws or operating agreement of the family affiliate, other than in the capacity of a director, from participating in major policymaking functions of the family affiliate, and thereafter:such excluded officer does not actually participate therein.

(1)(14) To"Operating ensureplan" means a plan that establishes the policies and procedures a private trust accountscompany arewill handledhave in accordanceeffect withwhen recognizedthe standardsinstitution ofopens fiduciaryfor conduct;business and thereafter:

and(A) (2)To toensure assurethat compliancetrust accounts are handled in accordance with applicablerecognized lawsstandards andof regulations.fiduciary conduct;

(p)and "Private(B) trustTo business"assure meanscompliance actingwith asapplicable orlaws performingand theregulations. duties of a fiduciary in the regular course of its business for family members.

(15) "Private trust business" means acting as or performing the duties of a fiduciary in the regular course of its business for family members.

(1)(A) Rendering services as an attorneyattorney-at-law at law in the performance of duties as a fiduciary;

(2)(B) Rendering services as a certified or registered public accountant in the performance of duties as such;

(3)(C) Acting as trustee under a deed of trust made only as security for the payment of money or for the performance of another act;

(4)(D) Acting as a trustee in bankruptcy or as a receiver;

(5)(E) Holding trusts of real estate for the primary purpose of subdivision, developmentdevelopment, or sale, or to facilitate any business transaction with respect to such real estate;

(6)5 CS for SB 562 (F) Engaging in the business of an escrow agent;

(7)(G) Holding assets as trustee of a trust created for charitable purposes if:

(A)(i) The trustee is an entity exempt from federal income tax under §501(c)(3)Section 501(c)(3) of the Internal Revenue Code;

and (B)(ii) The trust isis: (i) exempt from federal income taxes under §501(c)(3) of the Internal Intr SB 562 2023R3454S 2023R3271H Revenue Code;

(ii)(I) exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code, (II) a charitable remainder trust described in §664Section 664 of the Internal Revenue Code, (III) a pooled income fund described in Section 642(c)(5) of the Internal Revenue Code, or (IV) a trust the charitable interest in which is either a guaranteed annuity or a fixed percentage distributed yearly of the fair market value of the trust property, described in Section 2055(e)(2)(B) or Section 2522(c)(2)(B) of the Internal Revenue Code;

(iii)(H) Receiving rents and proceeds of sale as a pooledlicensed incomereal fundestate describedbroker inon §642(c)(5)behalf of the Internalprincipal; Revenue Code;

or (iv)(I) aEngaging trust the charitable interest in whichsecurities istransactions eitheras a guaranteedbroker-dealer annuity or asalesman. fixed percentage distributed yearly of the fair market value of the trust property, described in §2055(e)(2)(B) or § 2522(c)(2)(B) of the Internal Revenue Code;

(8)(16) Receiving"Private rentstrust andcompany" proceedsmeans of sale as a licensedcorporation realor estatelimited brokerliability oncompany behalfthat: of the principal;

or(A) (9)Is Engagingexclusively inowned securitiesby transactionsone asor amore broker-dealerfamily ormembers; salesman.

(q)(B) "PrivateIs trustorganized company"or meansqualified ato corporationdo orbusiness limitedin liabilitythis companystate; that:

(1)(C) IsEngages exclusivelyor ownedproposes byto engage in private trust business under this article with one or more family members;

(2)(D) isDoes organizednot serve as a fiduciary for a person, entity, trust, or qualifiedestate that is not a family member, except that it may serve as a fiduciary for up to do35 businessindividuals inwho thisare state;not family members if the individuals are current or former employees of the private trust company or one or more trusts, companies, or other entities that are family members;

(3)and engages(E) orDoes proposesnot totransact engage in private trust business under this chapter with onethe orgeneral morepublic. family members;

(4)(17) does"Qualified notbeneficiary" servehas as a fiduciary for a person, entity, trust, or estate that is not a family member, except that it may serve as a fiduciary for up to 35 individuals who are not family members if the individualsmeaning areprovided currentin or§44D-1-103(r) former employees of thethis privatecode. trust company or one or more trusts, companies, or other entities that are family members;

and(18) (5)"State doesAuditor" notmeans transactthe businessWest withVirginia theState generalAuditor. public.

(r)(19) "Qualified"Tax" beneficiary"includes, hasbut theis meaningnot providedlimited into, §44D-1-103(r)federal, ofstate, thisor code.local income, gift, estate, 6 CS for SB 562 generation-skipping transfer, or inheritance tax.

(s)(20) "State"Trust Auditor"institution" means a bank or trust company chartered by a state bank supervisory agency or by the WestOffice Virginiaof Statethe Auditor’sComptroller Office.of Currency.

(t) "Tax" includes, but is not limited to, federal, state, or local income, gift, estate, generation-skipping transfer, or inheritance tax.

(u) "Trust institution" means a bank or trust company chartered by a state bank supervisory agency or by the Office of the Comptroller of Currency.

minimum capital;capital requirements;

(a) No person other than a corporation or limited liability company organized under the laws of this state to engage exclusively in the private trust business shall act as a private trust Intr SB 562 2023R3454S 2023R3271H company or licensed private trust company.

The minimum capital account shallis be increased to $350,000 if two designated relatives of the licensed private trust company are named in the application for a license or in the annual license renewal;renewal.

orThe tominimum capital account is $450,000 if three designated relatives of the licensed private trust company are named in the application for a license or in the annual license renewal.

A private trust company may not be organized or operated with a capital account of less than $250,000$250,000. (c) No person shall engage in business as a private trust company or licensed private trust company without first giving written notice to the State Auditor.

The(c) noticeNo person shall identify:engage in business as a private trust company or licensed private trust company without first giving written notice to the State Auditor.

(1)The Atnotice shall identify at least one designated relative for any private trust company, and up to three designated relatives for any licensed private trust company, whose relationship(s)relationship to other individuals determines whether the individuals are family members;members.

andThe (2)notice shall identify the location of the principal office and additional office, if any, within this state.

The notice shall be accompanied by an operating plan and such other books, records, documents, or information as the CommissionerState Auditor may require.

(2) theThe private trust company or licensed private trust company is formed for no other reason than to engage in the private trust business;

7 CS for SB 562 (3) familyFamily members have subscribed for capital stock, surplus, and a reserve for operation in an amount equal to or in excess of $250,000;

and (4) theThe private trust company or licensed private trust company is serving or will serve as trustee for one or more trusts having an aggregate of at least $50,000,000 in trust assets as further specified in §31I-1-10 of this code.

(d) All of the capital stock, membership interests, or other equity interests of a private trust company or licensed private trust company shall be and shall remain owned by, and under the voting control of, family members, including any spouses, trusts, stock corporations, limited partnerships, limited liability companies, or estates qualifyingthat qualify under subdivision§31I-1-3(9)(B) (2),through (3),(E) (4), or (5) of the definition of "family member" set forth in §31I-1-3 of this code,code of one or more families.

Intr SB 562 2023R3454S 2023R3271H (e) An applicant seeking to operate as a licensed private trust company must file an application with the CommissionerState Auditor on forms prescribed by the Commissioner,State Auditor, accompanied by a nonrefundable $10,000 application fee to be deposited into a regulatoryspecial trustaccount fundin createdthe forState Treasury to be known as the purposePrivate ofTrust administeringCompany thisApplication chapter.Fund.

TheExpenditures applicationfrom mustthe containfund orshall be accompaniedfor by:the purpose of the State Auditor administering this article.

(1)Expenditures Theare namenot ofauthorized from collections but are to be made only in accordance with appropriation by the proposedLegislature licensedand privatein trustaccordance company.with the provisions of §12-3-1 et seq.

(2) A copy of thethis articlescode ofand incorporationupon orfulfillment articles of organization and the bylawsprovisions or operating agreement of the§11B-2-1 proposedet licensedseq. private trust company.

(3) The physical address and mailing address of the proposed licensed private trust company, which must be located in this state.code:

(4)Provided, AThat statementfor describingthe infiscal detailyear theending servicesJune that30, will2024, beexpenditures providedare toauthorized familyfrom memberscollections byrather thethan proposedpursuant licensedto privateappropriation trustby company.the Legislature.

(5) The nameapplication andto biographicaloperate information of each individual who will initially serve as a director,licensed officer,private manager,trust orcompany membermust actingalso incontain aor managerialbe capacityaccompanied ofby: the proposed licensed private trust company.

(6)(1) The name and biographical information of each individual who owns or has the ability or power to directly or indirectly vote at least 10 percent or more of the outstanding shares, membership interest, or membership units of the proposed licensed private trust company.company;

(7)(2) TheA namescopy of the designatedarticles relatives.of incorporation or articles of organization and the bylaws or operating agreement of the proposed licensed private trust company;

(8)(3) The amountphysical ofaddress theand initialmailing capitaladdress account of the proposed licensed private trust companycompany, and the form in which themust capitalbe waslocated paidin andthis willstate; be maintained.

(9)8 TheCS typefor andSB amount562 of(4) bondsA orstatement insurancedescribing thatin willdetail bethe procuredservices andthat maintainedwill onbe directors,provided officers,to managers,family or members actingby inthe aproposed manageriallicensed capacityprivate ortrust employeescompany; pursuant to §31I-1-12 of this code.

(5) The name and biographical information of each individual who will initially serve as a director, officer, manager, or member acting in a managerial capacity of the proposed licensed private trust company;

(6) The name and biographical information of each individual who owns or has the ability or power to directly or indirectly vote at least 10 percent or more of the outstanding shares, membership interest, or membership units of the proposed licensed private trust company;

(7) The names of the designated relatives;

(8) The amount of the initial capital account of the proposed licensed private trust company and the form in which the capital was paid and will be maintained;

(9) The type and amount of bonds or insurance that will be procured and maintained on directors, officers, managers, or members acting in a managerial capacity or employees pursuant to §31I-1-12 of this code;

Intr SB 562 2023R3454S 2023R3271H (A) The proposed licensed private trust company is not currently transacting business with the general public.public;

(B) No director, officer, manager, or member served as a director, officer, or manager, or acted in a managerial capacity, for a trust company or any other financial institution that had a license issued under the financial institutions codes or by the Federal Government or any other state, the District of Columbia, a territory of the United States, or a foreign country that was suspended or revoked within the 10 years preceding the date of the application.application;

(C) No director, officer, manager, or member acting in a managerial capacity has been convicted of, or pled guilty or nolo contendere, regardless of whether adjudication of guilt is 9 CS for SB 562 entered by the court, to a violation of the financial institutions codes, or other similar state or federal laws or related rules, or to a crime involving fraud, misrepresentation, or moral turpitude.turpitude;

(D) No director, officer, manager, or member acting in a managerial capacity has had a professional license suspended or revoked within the 10 years preceding the date of the application.application;

(E) All information contained in the application is true and correct to the best knowledge of the individual signing the application on behalf of the proposed licensed private trust company.company;

and (11) Any other additional information reasonably required by the Commissioner or State Auditor.

1 A private trust company or licensed private trust company shall not buy, redeem, or otherwise reacquire shares of stock or membership interests that the private trust company or licensed private trust company has issued, or declare a dividend or other distribution to its stockholders, members, or holders of equity interests, to the extent that such purchase, redemption, reacquisition, dividend, or distribution shall cause the private trust company's or licensed private trust company’s paid-in capital, retained surplussurplus, and reserves to be reduced below $250,000.

(a) The office at which a private trust company or licensed private trust company begins 10 CS for SB 562 business shall be designated initially as its principal office.

At least one director or manager shall be a citizenresident of this state.

(a) In the exercise of any power held by a private trust company or licensed private trust company in its capacity as a fiduciary, the private trust company or licensed private trust company shall have a duty not to exercise any power in such a way as to deprive the estate, trust, or other entity for which it acts as a fiduciary of an otherwise available tax exemption, deduction, or credit for tax purposespurposes, or deprive a donor of trust assets of a tax exemption, deduction, or credit or operate to impose a tax upon a donor or other person as owner of any portion of the estate, trust, or otherwise.

(b) Without limitation to subsection (a),(a) of this section, no family member who is a stockholder or member or who otherwise holds an equity interest in, or is serving as a director, 11 CS for SB 562 officer, manager, or employee of, a private trust company or licensed private trust company shall participate in or otherwise have a voice in any discretionary decision by the private trust company or licensed private trust company to distribute income or principal of any trust in order to discharge a legal obligation of thea family member or for thea family member's pecuniary benefit, unless:

A private trust company or licensed private trust company may not advertise its services to Intr SB 562 2023R3454S 2023R3271H the public.

12 CS for SB 562 (c) In lieu of the fidelity bonds required under subsection (a),(a) of this section, a licensed private trust company may increase its capital account required under §31I-1-4(b) of this codebycode by $1,000,000 so that if it has:

(2) twoTwo designated relatives, then it is organized or operated with a capital account of at least $1,350,000;

or (3) threeThree designated relatives, then it is organized or operated with a capital account of at least $1,450,000.

Intr§31I-1-13. SB 562 2023R3454S 2023R3271H CHAPTER 36.

Rulemaking authority by State Auditor.

The State Auditor shall promulgate emergency rules pursuant to the provisions of §29A-3- 15 of this code and may propose rules for legislative approval in accordance with the provisions of §29A-3-1 et seq.

of this code to implement the provisions of this article.

CHAPTER 36.

13 CS for SB 562 ARTICLE 1A.

(e) As to any trust created on or after theJuly effective1, date2023, of the West Virginia Private Trust Intr SB 562 2023R3454S 2023R3271H Company Act, this section shall apply to a nonvested property interest or power of appointment contained in a trust by substituting 1,000 years in place of "90 years" in each place such term appears in this section unless the terms of the trust require 14 CS for SB 562 that all beneficial interests in the trust vest or terminate within a lesser period.

(f) With respect to any matter relating to the validity of an interest within the rule against perpetuities,perpetuities on or after July 1, 2023, unless a contrary intent appears, it shall be presumed that the transferor of the interest intended that the interest be valid.

(g)15 This section shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this act among states enacting it.

NOTE:

The purpose of this bill is to enact laws authorizing the formation and operation of licensed and unlicensed private trust companies under West Virginia law and to make substantive changes to West Virginia’s rule against perpetuities by replacing its 90 year "wait and see" provision with a 1,000 "wait and see" provision to thereby permit dynastic, multigenerational trusts to be formed under West Virginia law, all in an effort to make West Virginia a more attractive situs for the formation and administration of trusts.

Strike-throughs indicate language that would be stricken from a heading or the present law and underscoring indicates new language that would be added.

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