Session Law

Identifying Information:L. 2001 ch. 075
Other Identifying Information:2001 House Bill 2465
Tax Type:Other
Brief Description:An Act concerning standards for investments by fiduciaries; prudent investor rule; amend- ing K.S.A. 16-324, 17-1311 and 58-1202 and K.S.A. 2000 Supp. 58-9-104, 58-1204, 58- 24a02, 72-17,125 and 74-8316 and repealing the existing sections; also repealing K.S.A. 17-5003, 17-5005, 17-5006 and 17-5007 and K.S.A. 2000 Supp. 17-5002.
Keywords:


Body:

CHAPTER 75

HOUSE BILL No. 2465


An Act concerning standards for investments by fiduciaries; prudent investor rule; amend-

ing K.S.A. 16-324, 17-1311 and 58-1202 and K.S.A. 2000 Supp. 58-9-104, 58-1204, 58-

24a02, 72-17,125 and 74-8316 and repealing the existing sections; also repealing K.S.A.

17-5003, 17-5005, 17-5006 and 17-5007 and K.S.A. 2000 Supp. 17-5002.




Be it enacted by the Legislature of the State of Kansas:

New Section 1. (a) Administrators, executors, conservators, trustees,

insurance companies and other financial institutions, charitable, educa-

tional, eleemosynary corporations and organizations are authorized, in

addition to investments now authorized by law, to invest funds which they

are authorized by law to invest, in shares or savings deposits of federally

insured savings and loan associations or federally chartered savings banks

with main or branch offices, as defined in K.S.A. 2000 Supp. 12-1675a,

and amendments thereto, in the state of Kansas and in credit unions

which are, in whole or in part, insured with an insurer or guarantee cor-

poration as required under K.S.A. 17-2246, and amendments thereto, and

such investment shall be deemed and held to be legal investments for

such funds.

(b) The governing body of any municipal corporation or quasi-mu-

nicipal corporation, county, township, school district, area vocational-

technical school, community college, firemen's relief association, com-

munity mental health center, community facility for the mentally retarded

or any other governmental entity, unit or division in the state of Kansas

having authority to receive, hold and expend public moneys or funds may

invest the same subject to and as provided by K.S.A. 9-1401, 9-1402, 9-

1405, 9-1407, 12-1675 and 12-1676 and amendments thereto.

New Sec. 2. In addition to all other authority now provided by law

for the investment of funds by executors, administrators, conservators,

trustees or other fiduciaries, all executors, administrators, conservators,

trustees or other fiduciaries may legally invest fiduciary or trust funds in

any loan which has insurance or guaranty under the servicemen's read-

justment act of 1944 as from time to time in force, or as to which a

commitment for any such insurance or guaranty has been made without

regard to the limitations, restrictions and requirements of any other stat-

utes, or of any rules of law respecting investments by executors, admin-

istrators, conservators, trustees or other fiduciaries.

New Sec. 3. Nothing contained in K.S.A. 2000 Supp. 58-24a01, et

seq., and amendments thereto, shall be construed as authorizing any de-

parture from, or variation of, the express terms or limitations set forth in

any will, agreement, court order or other instrument creating or defining

the fiduciary's duties and powers, but:

(a) Whenever any will, agreement, court order or other instrument

creating or defining the fiduciary's duties and powers, directs, requires,

authorizes or permits the fiduciary to invest in securities of a certain kind

or class, the fiduciary, in the absence of an express provision to the con-

trary, may buy, hold and sell such securities either directly or in the form

of shares of or other interests in any open-end or closed-end management

type investment company or investment trust registered under the in-

vestment company act of 1940, or any common trust fund of a state or

national bank or trust company as authorized by K.S.A. 9-1609, and

amendments thereto, if the portfolio of such investment company, in-

vestment trust or common trust fund is limited to securities of the des-

ignated kind or class and to repurchase agreements fully collateralized by

such securities.

(b) The fact that such bank or trust company or an affiliate of the

bank or trust company provides services to the investment company or

investment trust such as that of an investment advisor, custodian, transfer

agent, registrar, sponsor, distributor, manager or otherwise and is receiv-

ing reasonable remuneration for those services, shall not preclude such

bank or trust company from investing or reinvesting in the securities of

an open-end or closed-end management investment company or invest-

ment trust registered under the investment company act of 1940 (15

U.S.C. section 80a-1 et seq.) as amended.

With respect to any fiduciary account funds so invested, the bank or

trust company or an affiliate of the bank or trust company shall conspic-

uously disclose by statement, prospectus, or otherwise to all current in-

come beneficiaries of a fiduciary account the rate, formula or other

method by which the remuneration for those services, provided to the

investment company or investment trust, is determined. The investment

into such investment company or investment trust must be in the best

interest of the beneficiary of the fiduciary account, must meet the prudent

investor standard, as defined in K.S.A. 2000 Supp. 58-24a02, and amend-

ments thereto, and the total amount of all fees, charges and compensation

derived from the fiduciary account, and remuneration for services pro-

vided to the investment company or investment trust, by the bank or trust

company or an affiliate of the bank or trust company shall be reasonable.

New Sec. 4. Nothing contained in K.S.A. 2000 Supp. 58-24a01, et

seq., and amendments thereto, shall be construed as restricting the power

of a court of proper jurisdiction to permit a fiduciary to deviate from the

terms of any will, agreement, or other instrument relating to the acqui-

sition, investment, reinvestment, exchange, retention, sale or manage-

ment of fiduciary property.

Sec. 5. K.S.A. 16-324 is hereby amended to read as follows: 16-324.

A cemetery merchandise trust fund established pursuant to K.S.A. 16-

321 or 16-322, and amendments thereto, shall at all times be in the cus-

tody of a trust company or a federally insured bank or savings and loan

association which is authorized to do business in this state. Any cemetery

merchandise trust funds may be invested, reinvested, exchanged, re-

tained, sold and managed in the manner and subject to the requirements

of K.S.A. 17-5004 2000 Supp. 58-24a02, and amendments thereto, and,

at the election of the trustee, as a part of common trust funds.

Sec. 6. K.S.A. 17-1311 is hereby amended to read as follows: 17-

1311. Such A cemetery corporation shall maintain, in a trust company

located within the state of Kansas, a state or national bank located within

the state of Kansas, a state or federally chartered savings and loan asso-

ciation located within the state of Kansas or a federally chartered savings

bank located within the state of Kansas, a percentage of the purchase

price of each burial lot sold by it, or any payment thereon on such burial

lot, not less than 15% thereof of such purchase price, for the permanent

maintenance of the cemetery within which the burial lot lies, but the total

amount set aside shall not be less than $25 for each burial lot at the time

of conveyance of such lot. Deposits to the permanent maintenance fund

shall be made within 45 days of receipt of moneys for which deposits are

required to be made. Moneys placed in such fund under the provisions

of K.S.A. 17-1308, and amendments thereto, shall be credited for the

purposes of fulfilling such requirement. Moneys in such fund may be

held and invested to the same extent as is provided in K.S.A. 17-5004

2000 Supp. 58-24a02, and amendments thereto, but the total amount of

money invested in any mortgage upon real property shall not exceed an

amount equal to 75% of the market value of such property at the time of

such investment. The income of the permanent maintenance fund shall

be used exclusively for the maintenance of the cemetery. No part of the

principal of the fund shall ever be used for any purpose except for such

investment. In no event shall any loan of the funds be made to any stock-

holder, officer or employee of such cemetery corporation, or to any per-

son related, by blood or marriage, to a stockholder, officer or employee.

The treasurer of such corporation may deposit, to the credit of such fund,

donations or bequests for the fund and may retain property so acquired

without limitation as to time and without regard to its suitability for orig-

inal purchase. As used in this section, the term ``burial lot'' means a plot-

ted space for one grave. Such maintenance shall include, but not be lim-

ited to, mowing, road maintenance and landscaping, but shall not include

administrative costs, expense of audits or the portion of any capital ex-

pense for equipment used to maintain portions of a cemetery not sold for

burial purposes or in use for grave sites.

Sec. 7. K.S.A. 2000 Supp. 58-9-104 is hereby amended to read as

follows: 58-9-104. (a) A trustee may adjust between principal and income

to the extent the trustee considers necessary if the trustee invests and

manages trust assets as a prudent investor, pursuant to K.S.A. 17-5004

2000 Supp. 58-24a02, and amendments thereto, the terms of the trust

describe the amount that may or must be distributed to a beneficiary by

referring to the trust's income, and the trustee determines, after applying

the rules in subsection (a) of K.S.A. 2000 Supp. 58-9-103, and amend-

ments thereto, that the trustee is unable to comply with subsection (b)

of K.S.A. 2000 Supp. 58-9-103, and amendments thereto.

(b) In deciding whether and to what extent to exercise the power

conferred by subsection (a), a trustee shall consider all factors relevant to

the trust and its beneficiaries, including the following factors to the extent

they are relevant:

(1) The nature, purpose, and expected duration of the trust;

(2) the intent of the settlor;

(3) the identity and circumstances of the beneficiaries;

(4) the needs for liquidity, regularity of income, and preservation and

appreciation of capital;

(5) the assets held in the trust; the extent to which they consist of

financial assets, interests in closely held enterprises, tangible and intan-

gible personal property, or real property; the extent to which an asset is

used by a beneficiary; and whether an asset was purchased by the trustee

or received from the settlor;

(6) the net amount allocated to income under the other sections of

this act and the increase or decrease in the value of the principal assets,

which the trustee may estimate as to assets for which market values are

not readily available;

(7) whether and to what extent the terms of the trust give the trustee

the power to invade principal or accumulate income or prohibit the trus-

tee 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;

(8) the actual and anticipated effect of economic conditions on prin-

cipal and income and effects of inflation and deflation; and

(9) the anticipated tax consequences of an adjustment.

(c) A trustee may not make an adjustment:

(1) That diminishes the income interest in a trust that requires all of

the income to be paid at least annually to a spouse and for which an estate

tax or gift tax marital deduction would be allowed, in whole or in part, if

the trustee did not have the power to make the adjustment;

(2) that reduces the actuarial value of the income interest in a trust

to which a person transfers property with the intent to qualify for a gift

tax exclusion;

(3) that changes the amount payable to a beneficiary as a fixed annuity

or a fixed fraction of the value of the trust assets;

(4) from any amount that is permanently set aside for charitable pur-

poses under a will or the terms of a trust unless both income and principal

are so set aside;

(5) if possessing or exercising the power to make an adjustment

causes an individual to be treated as the owner of all or part of the trust

for income tax purposes, and the individual would not be treated as the

owner if the trustee did not possess the power to make an adjustment;

(6) if possessing or exercising the power to make an adjustment

causes all or part of the trust assets to be included for estate tax purposes

in the estate of an individual who has the power to remove a trustee or

appoint a trustee, or both, and the assets would not be included in the

estate of the individual if the trustee did not possess the power to make

an adjustment;

(7) if the trustee is a beneficiary of the trust; or

(8) if the trustee is not a beneficiary, but the adjustment would ben-

efit the trustee directly or indirectly.

(d) If subsection (c)(5), (6), (7), or (8) applies to a trustee and there

is more than one trustee, a cotrustee to whom the provision does not

apply may make the adjustment unless the exercise of the power by the

remaining trustee or trustees is not permitted by the terms of the trust.

(e) A trustee may release the entire power conferred by subsection

(a) or may release only the power to adjust from income to principal or

the power to adjust from principal to income if the trustee is uncertain

about whether possessing or exercising the power will cause a result de-

scribed in subsection (c)(1) through (6) or (c)(8) or if the trustee deter-

mines that possessing or exercising the power will or may deprive the

trust of a tax benefit or impose a tax burden not described in subsection

(c). The release may be permanent or for a specified period, including a

period measured by the life of an individual.

(f) Terms of a trust that limit the power of a trustee to make an

adjustment between principal and income do not affect the application

of this section unless it is clear from the terms of the trust that the terms

are intended to deny the trustee the power of adjustment conferred by

subsection (a).

Sec. 8. K.S.A. 58-1202 is hereby amended to read as follows: 58-

1202. (a) The trustee has all powers conferred upon the trustee by the

provisions of this the uniform trustees' powers act unless limited in the

trust instrument.

(b) An instrument which is not a trust under subsection (1) of K.S.A.

58-1201, and amendments thereto, may incorporate any part of the uni-

form trustees' powers act by reference.

(c) Unless the instrument expressly states otherwise the prudent in-

vestor rule, as expressed in K.S.A. 17-5004 2000 Supp. 58-24a02, and

amendments thereto, shall apply as the standard for the exercise of the

powers conferred upon a trustee by the uniform trustees' powers act.

Sec. 9. K.S.A. 2000 Supp. 58-1204 is hereby amended to read as

follows: 58-1204. Except as provided in K.S.A. 9-2107 and 17-5004 K.S.A.

2000 Supp. 58-24a02, and amendments thereto, the trustee shall not

transfer such trustee's office to another or delegate the entire adminis-

tration of the trust to a cotrustee or another.

Sec. 10. K.S.A. 2000 Supp. 58-24a02 is hereby amended to read as

follows: 58-24a02. (a) A fiduciary shall invest and manage trust assets as

a prudent investor would, by considering the purposes, terms, distribution

requirements and other circumstances of the trust. In satisfying this stan-

dard, the fiduciary shall exercise reasonable care, skill and caution.

(b) A fiduciary's investment and management decisions respecting

individual assets must be evaluated not in isolation but in the context of

the trust portfolio as a whole and as a part of an overall investment strategy

having risk and return objectives reasonably suited to the trust.

(c) Among circumstances that a fiduciary shall consider in investing

and managing trust assets are such of the following as are relevant to the

trust or its beneficiaries: (1) General economic conditions;

(2) the possible effect of inflation or deflation;

(3) the expected tax consequences of investment decisions or strat-

egies;

(4) the role that each investment or course of action plays within the

overall trust portfolio, which may include financial assets, interests in

closely held enterprises, tangible and intangible personal property and

real property;

(5) the expected total return from income and the appreciation of

capital;

(6) other resources of the beneficiaries who are eligible to receive

discretionary payments of trust income or principal assets;

(7) needs for liquidity, regularity of income and preservation or ap-

preciation of capital; and

(8) an asset's special relationship or special value, if any, to the pur-

poses of the trust or to one or more of the beneficiaries.

(d) A fiduciary shall make a reasonable effort to verify facts relevant

to the investment and management of trust assets.

(e) A fiduciary may invest in any kind of property or type of invest-

ment consistent with the standards of this act.

(f) A fiduciary who has special skills or expertise or is placed in a

fiduciary capacity in reliance upon the fiduciary's representation that the

fiduciary has special skills or expertise, has a duty to use those special

skills or expertise.

(g) In acquiring, investing, reinvesting, exchanging, retaining, selling

and managing property of a trust which is revocable or amendable, a

trustee following written directions regarding the property of the trust

that are received by the trustee from the person or persons then having

the power to revoke or amend the trust or from the person or persons

other than the trustee, to whom the grantor delegates the right to give

such written directions to the trustee shall be deemed to have complied

with the standards provided in subsections (a) through (d). The trustee is

authorized to follow such written directions regardless of any fiduciary

obligations to which the directing party may also be subject.

Sec. 11. K.S.A. 2000 Supp. 72-17,125 is hereby amended to read as

follows: 72-17,125. (a) The board of education of any school district to

which K.S.A. 72-1727, 72-1760, 72-1781, 72-1789, 72-17,100, 72-17,108

or 72-17,121, and amendments thereto, apply, and the retirement fund

of which has a balance greater than $50,000, may invest and reinvest

moneys in the retirement fund of the school district and to acquire, retain,

manage, including the exercise of any voting rights, and dispose of in-

vestments of such fund in accordance with this subsection and K.S.A. 72-

17,126 to 72-17,131, inclusive, and amendments thereto. The provisions

and standards provided in K.S.A. 17-5004 2000 Supp. 58-24a02 and

amendments thereto shall apply in investing or reinvesting moneys in

such fund.

(b) The board of education of any school district to which K.S.A. 72-

1727, 72-1760, 72-1781, 72-1789, 72-17,100, 72-17,108 or 72-17,121, and

amendments thereto, apply, and the retirement fund of which has a bal-

ance of $50,000 or less, may invest and reinvest moneys in such fund only

in direct obligations of, or obligations the principal of which and interest

on which are unconditionally guaranteed by, the United States of Amer-

ica, or in time deposit open accounts in any bank located in Kansas, except

that the amount so invested in a bank shall be secured in the manner

prescribed by subsections (a) to (e), inclusive, of K.S.A. 75-4218, and

amendments thereto.

Sec. 12. K.S.A. 2000 Supp. 74-8316 is hereby amended to read as

follows: 74-8316. (a) The Kansas technology enterprise corporation is

hereby authorized to facilitate the establishment of a technology-based

venture-capital fund in which the corporation may invest only moneys

from the economic development initiatives fund specifically so allocated.

The corporation may credit also the fund with gifts, donations or grants

received from any source other than state government and with proceeds

from the fund. Investments in the fund shall qualify for the income tax

credit allowed pursuant to K.S.A. 74-8304, and amendments thereto.

(b) The technology-based venture-capital fund may invest the assets

as follows:

(1) To carry out the purposes of this act through investments in qual-

ified securities and through the forms of financial assistance authorized

by this act, including:

(A) Loans, loans convertible to equity, and equity;

(B) leaseholds;

(C) management or consultant service agreements;

(D) loans with warrants attached that are beneficially owned by the

fund;

(E) loans with warrants attached that are beneficially owned by a

party other than the fund; and

(F) the fund, in connection with the provision of any form of financial

assistance, may enter into royalty agreements with an enterprise.

(2) To invest in such other investments as are lawful for Kansas fi-

duciaries pursuant to K.S.A. 17-5001 et seq. 2000 Supp. 58-24a02 and

amendments thereto.

(c) Distributions received by the corporation may be reinvested in

any fund consistent with the purposes of this act.

(d) The corporation may invest only in a fund whose investment

guidelines permit the fund's purchase of qualified securities issued by an

enterprise as a part of a resource and technology project subject to the

following:

(1) Receipt of an application from the enterprise which contains:

(A) A business plan including a description of the enterprise and its

management, product and market;

(B) a statement of the amount, timing and projected use of the capital

required;

(C) a statement of the potential economic impact of the enterprise,

including the number, location and types of jobs expected to be created;

and

(D) such other information as the fund manager or the fund's board

of directors shall request.

(2) Approval of the investment by the fund may be made after the

fund manager or the fund's board of directors finds, based upon the

application submitted by the enterprise and such additional investigation

as the fund manager or the fund's board of directors shall make and

incorporate in its minutes, that:

(A) The proceeds of the investment will be used only to cover the

venture-capital needs of the enterprise except as authorized by this sec-

tion;

(B) the enterprise has a reasonable possibility of success;

(C) the fund's participation is instrumental to the success of the en-

terprise because funding otherwise available for the enterprise is not

available on commercially feasible terms;

(D) the enterprise has the reasonable potential to create a substantial

amount of employment within the state;

(E) the entrepreneur and other founders of the enterprise have al-

ready made or are contractually committed to make a substantial financial

and time commitment to the enterprise;

(F) the securities to be purchased are qualified securities;

(G) there is a reasonable possibility that the fund will recoup at least

its initial investment; and

(H) binding commitments have been made to the fund by the enter-

prise for adequate reporting of financial data to the fund, which shall

include a requirement for an annual report, or if required by the fund

manager, an annual audit of the financial and operational records of the

enterprise, and for such control on the part of the fund as the fund man-

ager shall consider prudent over the management of the enterprise, so as

to protect the investment of the fund, including in the discretion of the

fund manager and without limitation, the right of access to financial and

other records of the enterprise.

(e) All investments made pursuant to this section shall be evaluated

by the fund's investment committee and the fund shall be audited an-

nually by an independent auditing firm.

(f) The fund shall not make investments in qualified securities issued

by enterprises in excess of the amount necessary to own more than 49%

of the qualified securities in any one enterprise at the time of the purchase

by the fund, after giving effect to the conversion of all outstanding con-

vertible qualified securities of the enterprise, except that in the event of

severe financial difficulty of the enterprise, threatening, in the judgment

of the fund manager, the investment of the fund therein, a greater per-

centage of such securities may be owned by the fund.

(g) At least 75% of the total investment of the fund must be in Kansas

businesses.

Sec. 13. K.S.A. 16-324, 17-1311, 17-5003, 17-5005, 17-5006, 17-

5007 and 58-1202 and K.S.A. 2000 Supp. 17-5002, 58-9-104, 58-1204,

58-24a02, 72-17,125 and 74-8316 are hereby repealed.

Sec. 14. This act shall take effect and be in force from and after its

publication in the statute book.

Approved April 3, 2000.


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Date Composed: 09/25/2001 Date Modified: 09/25/2001