Bill Summary – FastDemocracy

WEST VIRGINIA LEGISLATURE
         2023 REGULAR SESSION
                     ENROLLED
               House Bill 3272
 BY DELEGATES CRISS, HARDY, HOUSEHOLDER, BARNHART,
WESTFALL, JEFFRIES, HOTT, CAPITO, C. PRITT, ESPINOSA AND
                            RILEY
[Passed February 22, 2023; in effect ninety days from passage.]
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  AN ACT to amend the Code of West Virginia, 1931, as amended, by adding thereto a new chapter,
             designated §31I-1-1, §31I-1-2, §31I-1-3, §31I-1-4, §31I-1-5, §31I-1-6, §31I-1-7, §31I-1-8,
             §31I-1-9, §31I-1-10, §31I-1-11, §31I-1-12, and §31I-1-13; and to amend and reenact §36-
             1A-1 of said code, all relating to the operation of private trust companies; creating the
             West Virginia Private Trust Company Act; setting forth purposes and findings; defining
             terms; specifying requirements and limitations for and powers of private trust companies
             and licensed private trust companies; requiring a nonrefundable application fee; creating
             a special account in the State Treasury; specifying responsibilities and rule-making
             authority of the State Auditor; and modifying statutory rule against perpetuities.
     Be it enacted by the Legislature of West Virginia:
                                 CHAPTER 31I. TRUST COMPANIES.
     ARTICLE 1. PRIVATE TRUST COMPANIES AND PRIVATE TRUST BUSINESS.
     §31I-1-1. Short title.
             This article may be cited as the "Private Trust Company Act".
     §31I-1-2. Purposes; findings.
             (a) The purpose of the article is to establish requirements for licensing private trust
  companies, to regulate persons who provide fiduciary services to family members of no more than
  three families and their related interests as a private trust company, and to establish the degree
  of regulatory oversight required of the State Auditor over such companies. The public interest
  served by this article is to ensure that fiduciary activities performed by a private trust company
  are restricted to family members and their related interests and as otherwise provided in this
  article.
             (b) The Legislature finds that:
             (1) A private trust company is not a financial institution, and licensure of such a company
 is not required.
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        (2) A private trust company may elect to be a licensed private trust company under this
 article if the company desires to be subject to the regulatory oversight of the State Auditor, as
 provided in this article, notwithstanding that the company restricts its services to family members.
        (3) With respect to a licensed private trust company, the State Auditor is responsible for
 regulating, supervising, and examining the company as provided under this article.
        (4) With respect to a private trust company that does not elect to be licensed, the State
 Auditor’s role is limited to ensuring that fiduciary services provided by the company are restricted
 to family members and authorized related interests and not to the general public. The State
 Auditor is not responsible for examining a private trust company regarding the safety or
 soundness of its operations.
     §31I-1-3. Definitions.
  As used in this article, unless the context requires a different meaning:
         (1) "Applicant" means the corporation or limited liability company on whose behalf an
  application for a license to operate as a licensed private trust company is submitted under §31I-
  1-4(e) of this code.
         (2) "Capital account" means the aggregate value of unimpaired capital stock based on the
  par value of the shares, plus any unimpaired surplus and undivided profits or retained earnings
  of a private trust company organized as a corporation; or the initial cash investment remitted for
  membership interests in a private trust company organized as a limited liability company, plus any
  undivided profits or retained earnings of the limited liability company.
        (3) "Capital stock" means the shares of stock issued to create nonwithdrawable capital for
 a corporation, or membership interests issued to create nonwithdrawable capital for a limited
 liability company.
        (4) "Collateral kinship" means a relationship that is not lineal but derives from a common
 ancestor.
        (5) "Degrees of kinship" means, with respect to two persons:
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        (A) Degrees of lineal kinship computed by counting one degree for each person in the line
 of ascent or descent, exclusive of the person from whom the computing begins; and
        (B) Degrees of collateral kinship computed by commencing with one of the persons and
 ascending from that person to a common ancestor, descending from that ancestor to the other
 person, and counting one degree for each person in the line of ascent and in the line of descent,
 exclusive of the person from whom the computation begins, the total to represent the degree of
 such kinship.
        (6) "Designated relative" means a common ancestor of a family, who may be a living or
 deceased person, who is the individual to or through whom the family members are related, and
 who is so designated in the application for a license.
        (7) "Family" means a designated relative and family members of that designated relative.
        (8) "Family affiliate" means a company or other entity in which one or more family
 members own, control, or have the power, directly or indirectly, to vote all of the capital stock,
 partnership interests, membership interests, or other equity interests of the entity.
        (9) "Family member" means a designated relative and:
        (A) Any individual within: (i) the fifth degree of lineal kinship to a designated relative of a
 private trust company, or the sixth degree of lineal kinship to a designated relative of a licensed
 private trust company, or (ii) the seventh degree of collateral kinship to a designated relative of a
 private trust company, or the ninth degree of collateral kinship to a designated relative of a
 licensed private trust company;
        (B) The present or past spouse of any individual qualifying as a family member and an
 individual who is within the fifth degree of lineal kinship to such spouse or former spouse;
        (C) A trust established by: (i) a family member if the trust is funded exclusively by one or
 more family members and, for these purposes, a trust to which property has been transferred as
 a result of a family member’s exercise of a power of appointment shall be considered established
 by that family member if all qualified beneficiaries of the appointee trust are family members, or
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 (ii) an individual who is not a family member if all of the noncharitable qualified beneficiaries of
 the trust are family members, except that a trust composed exclusively of nonindividual qualified
 beneficiaries is considered to be a family member if all of the nonindividual qualified beneficiaries
 are charitable foundations or other charitable entities as described in paragraph (F) of this
 subdivision;
        (D) A family affiliate or officer or former officer of a family affiliate: Provided, That in the
 case of a former officer, such officer must have qualified as an officer of the family affiliate at any
 time within the past three years;
        (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 paragraph (F) of this subdivision; or
        (F) A charitable foundation or other charitable entity that either: (i) was created by a family
 member, or (ii) has a governing body consisting mostly of family members.
        (10) "Fiduciary" means executor, administrator, conservator, guardian, committee, or
 trustee.
        (11) "Licensed private trust company" means a private trust company that operates in
 accordance with this article and has been issued a license that has not been revoked or
 suspended by the State Auditor.
        (12) "Lineal kinship" means a family member who is in the direct line of ascent or descent
 from a designated relative.
        (13) "Officer" of a family affiliate means an individual, regardless of whether the individual
 has an official title or receives a salary or other compensation, who may participate in the major
 policymaking functions of a family affiliate, other than as a director. The term does not include an
 individual who may have an official title and exercise discretion in the performance of duties and
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 functions, but who does not participate in determining the major policies of the family affiliate and
 whose decisions are limited by policy standards established by other officers, regardless of
 whether the policy standards have been adopted by the board of directors or other members of
 management. The chair of the board of directors, the president, the chief officer, the chief financial
 officer, the senior trust officer, and all executive vice presidents of a family affiliate, and all
 managers if organized as a limited liability company, are presumed to be officers unless such
 officer is excluded by resolution of the board of directors or 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 such excluded officer does not actually
 participate therein.
         (14) "Operating plan" means a plan that establishes the policies and procedures a private
 trust company will have in effect when the institution opens for business and thereafter:
         (A) To ensure that trust accounts are handled in accordance with recognized standards of
 fiduciary conduct; and
         (B) To assure compliance with applicable laws and regulations.
         (15) "Private trust business" means acting as or performing the duties of a fiduciary in the
 regular course of its business for family members. A person does not engage in private trust
 business by:
         (A) Rendering services as an attorney-at-law in the performance of duties as a fiduciary;
         (B) Rendering services as a certified or registered public accountant in the performance
  of duties as such;
         (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;
         (D) Acting as a trustee in bankruptcy or as a receiver;
         (E) Holding trusts of real estate for the primary purpose of subdivision, development, or
  sale, or to facilitate any business transaction with respect to such real estate;
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         (F) Engaging in the business of an escrow agent;
         (G) Holding assets as trustee of a trust created for charitable purposes if:
         (i) The trustee is an entity exempt from federal income tax under Section 501(c)(3) of the
  Internal Revenue Code; and
         (ii) The trust is: (I) exempt from federal income taxes under Section 501(c)(3) of the
  Internal Revenue Code, (II) a charitable remainder trust described in Section 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;
        (H) Receiving rents and proceeds of sale as a licensed real estate broker on behalf of the
 principal; or
        (I) Engaging in securities transactions as a broker-dealer or salesman.
        (16) "Private trust company" means a corporation or limited liability company that:
        (A) Is exclusively owned by one or more family members;
        (B) Is organized or qualified to do business in this state;
        (C) Engages or proposes to engage in private trust business under this article with one or
 more family members;
        (D) Does not serve 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 individuals are current or former employees of the private trust company or one
 or more trusts, companies, or other entities that are family members; and
        (E) Does not transact business with the general public.
        (17) "Qualified beneficiary" has the meaning provided in §44D-1-103(r) of this code.
        (18) "State Auditor" means the West Virginia State Auditor.
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         (19) "Tax" includes, but is not limited to, federal, state, or local income, gift, estate,
  generation-skipping transfer, or inheritance tax.
         (20) "Trust institution" means a bank or trust company chartered by a state bank
  supervisory agency or by the Office of the Comptroller of Currency.
      §31I-1-4. Organization; minimum capital requirements; notice to State Auditor; control;
              application for license.
          (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
  company or licensed private trust company.
          (b) A licensed private trust company that has one designated relative may not be
  organized or operated with an owners’ capital account of less than $250,000. The minimum
  capital account is $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. The minimum 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.
          (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 notice 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 to other individuals determines whether
  the individuals are family members. The 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 State Auditor may require. The
  notice shall also certify that:
          (1) All provisions of law have been complied with;
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        (2) The private trust company or licensed private trust company is formed for no other
 reason than to engage in the private trust business;
        (3) Family 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) The 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 that qualify under §31I-1-3(9)(B) through (E)
 of this code of one or more families.
        (e) An applicant seeking to operate as a licensed private trust company must file an
 application with the State Auditor on forms prescribed by the State Auditor, accompanied by a
 nonrefundable $10,000 application fee to be deposited into a special account in the State
 Treasury to be known as the Private Trust Company Application Fund. Expenditures from the
 fund shall be for the purpose of the State Auditor administering this article. Expenditures are not
 authorized from collections but are to be made only in accordance with appropriation by the
 Legislature and in accordance with the provisions of §12-3-1 et seq. of this code and upon
 fulfillment of the provisions of §11B-2-1 et seq. of this code: Provided, That for the fiscal year
 ending June 30, 2024, expenditures are authorized from collections rather than pursuant to
 appropriation by the Legislature. The application to operate as a licensed private trust company
 must also contain or be accompanied by:
        (1) The name of the proposed licensed private trust company;
        (2) A copy of the articles of incorporation or articles of organization and the bylaws or
 operating agreement of the proposed licensed private trust company;
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