Committee advances Senate File 97 to modernize trust code, adds trustee discretion to reimburse settler tax liabilities

Senate File 97, a package of trust-code updates presented to the Minerals, Business & Economic Development Committee, received a committee recommendation to pass after testimony from bill sponsors and trust-industry representatives.

The bill, introduced in committee by Senator Case, would revise the definition of a "qualified trustee" in state law and add a statutory discretionary power permitting a trustee to reimburse a settlor (also called a grantor) for certain tax liabilities the Internal Revenue Service has said can fall back to that person in some cases.

Committee members were told the changes are largely technical and intended to harmonize and modernize Wyoming's trust statutes. "This bill is really just an amalgamation of a few little changes to the trust code to bring it up to kind of modernize it," Senator Case said. He described two substantive changes and a set of conforming edits.

Why it matters: witnesses said the updates respond to a 2023 IRS interpretation and reduce the risk that trustees or settlors face unintended tax consequences. Scott Weaver, general counsel and chief fiduciary officer at Willow Street and a member of the Wyoming Trust Association legislative committee, said the discretionary reimbursement power would allow trustees to pay a tax bill that an IRS rule might treat as the settlor's responsibility. "There may be instances where it's appropriate to reimburse the grantor for taxes they pay on behalf of the trust," Weaver said, describing grantor trusts that remain taxable to the settlor under federal law.

What the bill changes: testimony and bill text discussed at least two substantive items: - Trustee qualification: The definition of who may be a "qualified trustee" would be clarified to prevent settlors from indirectly circumventing limits on settlor control through related entities (for example, trust companies owned by settlors). The revised language would disallow indirect arrangements that recreate prohibited control unless discretionary distributions by the entity require consent of disinterested persons. - Reimbursement for settlor tax liabilities: In response to recent IRS guidance, the bill would authorize trustees, in defined circumstances, to reimburse a settlor for taxes that federal law treats as the settlor's obligation even when the settlor is not a beneficiary. Supporters said the power is intended to preserve settled expectations and avoid creating taxable gifts when trustees exercise routine administration powers.

Industry witnesses described the changes as clarifying existing practice and reducing a legal barrier to moving trust business to Wyoming. "From my perspective, the answer is at the margin, yes" the changes may attract trust business, Weaver said, adding that the draft harmonizes Wyoming law with language used in other trust-friendly states.

Committee deliberations and vote: There was limited debate and no floor amendments. Representative Lawley moved the bill; the motion was seconded by Representative Napp. The committee's roll-call vote was recorded as 8 yes, 2 no, 0 abstain, with 1 member excused. The committee recommended the bill for passage and transmission to the full chamber.

Next steps: With the committee recommendation, Senate File 97 will move to the chamber for further consideration and possible floor action.