KRS 386.355: Acts prohibited -- Policy of state regarding private foundations -- Split-

interest trusts -- Charitable trusts.

(1) In the administration of any trust which is a "private foundation" as defined in

Section 509 of the Internal Revenue Code, a trust for charitable purposes described

in Section 4947(a)(1) of the Internal Revenue Code to the extent that it is treated for

federal tax purposes as such a private foundation, or a "split -interest trust" as

described in Section 4947(a)(2) of the Internal Revenue Code, the following acts are

prohibited:

(a) Engaging in any act of "self -dealing" (as defined in Section 4941(d) of the

Internal Revenue Code) which would give rise to any liability for any tax

imposed by Section 4941 of the Internal Revenue Code;

(b) Retaining any "excess business holdings" (as defined in Section 4943(c) of the

Internal Revenue Code) which would give rise to any liability for any tax

imposed by Section 4943 of the Internal Revenue Code;

(c) Making any investments which would jeopardize th e carrying out of any of

the exempt purposes of the trust, within the meaning of Section 4944 of the

Internal Revenue Code, so as to give rise to any liability for any tax imposed

by Section 4944 of the Internal Revenue Code; and

(d) Making any "taxable ex penditures" (as defined in Section 4945(d) of the

Internal Revenue Code) which would give rise to any liability for any tax

imposed by Section 4945 of the Internal Revenue Code; provided, however,

that the prohibitions of this subsection shall not apply to split-interest trusts or

to amounts thereof, to the extent that such prohibitions are made inapplicable

thereto by Section 4947 of the Internal Revenue Code.

(2) In the administration of any trust which is a "private foundation" as defined in

Section 509 of the Internal Revenue Code, or a trust for charitable purposes

described in Section 4947(a)(1) of the Internal Revenue Code to the extent that it is

treated for federal tax purposes as such a private foundation, there shall, for the

purposes specified in the governing instrument, be distributed at such time and in

such manner, for each taxable year, amounts of income and principal at least

sufficient to avoid liability for any tax imposed by Section 4942 of the Internal

Revenue Code.

(3) Subsections (1) a nd (2) of this section express the continuing policy of this state

with respect to charitable trust interests and are enacted to assist such trusts in

maintaining various tax benefits extended to them, and shall apply to all trusts

described therein; provi ded, however, that subsections (1) and (2) of this section

shall not apply to a trust in existence on July 1, 1972, to the extent that the Attorney

General of this state, the trustor, or any beneficiary of such trust, on or before

November 30, 1972, files with the trustee of such trust a written objection to the

application to such trust of one (1) or more provisions of subsections (1) and (2) of

this section and the trustee receiving such written objection commences an action

on or before December 31, 1972 , in the court having jurisdiction over such trust to

reform its governing instrument or any other instrument in order to meet, or to

excuse such trust from compliance with the requirements of subsections (1) and (2)

of this section. If a trustee receiving such written objection shall commence such an

action, the one (1) or more provisions of subsections (1) and (2) of this section

specified in such written objection shall not apply to such trust unless and until such

court determines that their application to such trust is in the best interests of all

parties in interest.

(4) No trustee of a trust to which subsection (1) or (2) of this section is applicable shall

be surcharged for a violation of a prohibition or requirement of said subsections

unless he par ticipated in such violation knowing that it was a violation, nor shall

such a trustee be surcharged if such violation was not willful and was due to

reasonable cause; provided, however, that this subsection does not exonerate a

trustee from any responsibil ity or liability to which he is subject under any other

rule of law, whether or not duplicated in subsections (1) and (2) of this section.

(5) Except as provided in subsection (4) of this section, nothing in this section shall

impair the rights and powers of the courts or the Attorney General with respect to

any trust.

(6) In furtherance of the continuing policy of this state to assist charitable trust interests

in maintaining various tax benefits extended to them, the provisions of subsections

(1) and (2) of this section shall be deemed to have been in force and effect on

January 1, 1970; provided, however, the provisions of said subsections shall affect a

trust organized before January 1, 1970, only on and after the first day of its first

taxable year (for federal tax purposes) beginning on or after January 1, 1972.