{"data":{"id":"us-ky/krs-386b.13-180","jurisdiction":"us-ky","citation":"KRS 386B.13-180","heading":"Tax-related limitations.","body":"(1) As used in this section:\n(a) \"Grantor trust\" means a trust as to which a settlor of a first trust is considered\nthe owner under 26 U.S.C. secs. 671 to 677, as amended, or 26 U.S.C. sec.\n679, as amended;\n(b) \"Internal Revenue Code\" means the United States Internal Revenue Code of\n1986, as amended;\n(c) \"Nongrantor trust\" means a trust that is not a grantor trust; and\n(d) \"Qualified benefits property\" means property subject to the minimum\ndistribution requirements of 26 U.S.C. sec. 401(a)(9), as amended, and any\napplicable regulations, or  to any similar requirements that refer to 26 U.S.C.\nsec. 401(a)(9) or the regulations.\n(2) An exercise of the decanting power is subject to the following limitations:\n(a) If a first trust contains property that qualified, or would have qualified but for\nprovisions of KRS 386B.13 -010 to 386B.13-280 other than this section, for a\nmarital deduction for purposes of the gift or estate tax under the Internal\nRevenue Code or a state gift, estate, or inheritance tax, the second -trust\ninstrument shall not include o r omit any term that, if included in or omitted\nfrom the trust instrument for the trust to which the property was transferred,\nwould have prevented the transfer from qualifying for the deduction, or would\nhave reduced the amount of the deduction, under the  same provisions of the\nInternal Revenue Code or state law under which the transfer qualified;\n(b) If the first trust contains property that qualified, or would have qualified but\nfor provisions of KRS 386B.13 -010 to 386B.13 -280 other than this section,\nfor a charitable deduction for purposes of the income, gift, or estate tax under\nthe Internal Revenue Code or a state income, gift, estate, or inheritance tax,\nthe second-trust instrument shall not include or omit any term that, if included\nfrom or omitted f rom the trust instrument for the trust to which the property\nwas transferred, would have prevented the transfer from qualifying for the\ndeduction, or would have reduced the amount of the deduction, under the\nsame provisions of the Internal Revenue Code or state law under which the\ntransfer qualified;\n(c) If the first trust contains property that qualified, or would have qualified but\nfor provisions of KRS 386B.13 -010 to 386B.13 -280 other than this section,\nfor the exclusion from the gift tax described in:\n1. 26 U.S.C. sec. 2503(b), as amended, the second -trust instrument shall\nnot include or omit a term that, if included in or omitted from the trust\ninstrument for the trust to which the property was transferred, would\nhave prevented the transfer from qualify ing under 26 U.S.C. sec.\n2503(b), as amended; or\n2. 26 U.S.C. sec. 2503(c), as amended, the second -trust instrument shall\nnot include or omit a term that, if included in or omitted from the trust\ninstrument for the trust to which the property was transferred, would\nhave prevented the transfer from qualifyin g under 26 U.S.C. sec.\n2503(c), as amended;\n(d) If the property of the first trust includes shares of stock in an S corporation as\ndefined in 26 U.S.C. sec. 1361, as amended, and the first trust is, or but for\nprovisions of KRS 386B.13-010 to 386B.13-280 other than this section would\nbe, a permitted shareholder under any provision of 26 U.S.C. sec. 1361, as\namended, an authorized fiduciary may exercise the power with respect to part\nof all the S corporation stock only if any second trust receiving the stock  is a\npermitted shareholder under 26 U.S.C. sec. 1361(c)(2), as amended. If the\nproperty of the first trust includes shares of stock in an S corporation and the\nfirst trust is, or but for provisions of KRS 386B.13 -010 to 386B.13-280 other\nthan this section  would be, a qualified subchapter S trust within the meaning\nof 26 U.S.C. sec. 1361(d), as amended, the second -trust instrument shall not\ninclude or omit a term that prevents the second trust from qualifying as a\nqualified subchapter S trust;\n(e) If the fi rst trust contains property that qualified, or would have qualified but\nfor provisions of KRS 386B.13 -010 to 386B.13 -280 other than this section,\nfor a zero inclusion ratio for purposes of the generation -skipping transfer tax\nunder 26 U.S.C. sec. 2642(c), as amended, the second -trust instrument shall\nnot include or omit a term that, if included in or omitted from the first -trust\ninstrument, would have prevented the transfer to the first trust from qualifying\nfor a zero inclusion ratio under 26 U.S.C. sec. 2642(c), as amended;\n(f) If the first trust is directly or indirectly the beneficiary of qualified benefits\nproperty, the second-trust instrument shall not include or omit any term that, if\nincluded in or omitted from the first -trust instrument, would have increased\nthe minimum distributions required with respect to the qualified benefits\nproperty under 26 U.S.C. sec. 401(a)(9), as amended, and any applicable\nregulations, or any similar requirements that refer to 26 U.S.C. sec. 401(a)(9),\nas amended, or the regulations. If an attempted exercise of the decanting\npower violates the preceding sentence, the trustee is deemed to have held the\nqualified benefits property and any reinvested distributions of the property as\na separate share from the date of the exercise of the power, and KRS 386B.13-\n210 applies to the separate share;\n(g) If the first trust qualifies as a grantor trust because of the application of 26\nU.S.C. sec. 672(f)(2)(A), as amended, the second trust shall not include or\nomit a term that, if inclu ded in or omitted from the first -trust instrument,\nwould have prevented the first trust from qualifying under 26 U.S.C. sec.\n672(f)(2)(A), as amended;\n(h) As used in this paragraph, \"tax benefit\" means a federal or state tax deduction,\nexemption, exclusion , or other benefit not otherwise listed in this section,\nexcept for a benefit arising from being a grantor trust. Subject to paragraph (i)\nof this subsection, a second -trust instrument shall not include or omit a term\nthat, if included in or omitted from t he first -trust instrument, would have\nprevented qualification for a tax benefit if:\n1. The first-trust instrument expressly indicates an intent to qualify for the\nbenefit or the first-trust instrument clearly is designed to enable the first\ntrust to qualify for the benefit; and\n2. The transfer of property held by the first trust or the first trust qualified,\nor but for the provisions of KRS 386B.13 -010 to 386B.13 -280 other\nthan this section, would have qualified for the tax benefit;\n(i) Subject to paragraph (d) of this subsection:\n1. Except as otherwise provided in paragraph (g) of this subsection, the\nsecond trust may be a nongrantor trust, even if the first trust is a grantor\ntrust; and\n2. Except as otherwise provided in paragraph (j) of this subsection, t he\nsecond trust may be a grantor trust, even if the first trust is a nongrantor\ntrust; and\n(j) An authorized fiduciary may not exercise the decanting power if a settlor\nobjects in a signed record delivered to the fiduciary within the notice period\nand:\n1. The first trust and a second trust are both grantor trusts, in whole or in\npart, the first trust grants the settlor or another person the power to cause\nthe first trust to cease to be a grantor trust, and the second trust does not\ngrant an equivalent power to the settlor or other person; or\n2. The first trust is a nongrantor trust and a second trust is a grantor trust,\nin whole or in part, with respect to the settlor, unless:\na. The settlor has the power at all times to cause the second trust to\ncease to be a grantor trust; or\nb. The first-trust instrument contains a provision granting the settlor\nor another person a power that would cause the first trust to cease\nto be a grantor trust and the second -trust instrument contains the\nsame provision.","path":[],"source_url":"https://apps.legislature.ky.gov/law/statutes/statute.aspx?id=57767","current_through":"Includes enactments through the 2026 Regular Session","vintage":"09/05/2026","retrieved_at":"2026-09-05T20:59:20Z","sha256":"fbb606438239d96b0610e656c4105935141d4b499f73367210f40f92f41af2c5","source_id":"us-ky","stale":false,"prev":"us-ky/krs-386b.13-170","next":"us-ky/krs-386b.13-190"},"notice":"GroundRules: Original legal text. Not legal advice."}