D R A F T
FOR APPROVAL
AMENDMENTS TO THE UNIFORM TRUST CODE (2000)
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
MEETING IN ITS ONE-HUNDRED-AND-THIRTEENTH YEAR
PORTLAND, OREGON
JULY 30-AUGUST 6, 2004
AMENDMENTS TO THE UNIFORM TRUST CODE (2000)
AS APPROVED BY THE EXECUTIVE COMMITTEE OF THE NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS PURSUANT TO SECTION 4.3(3) OF ITS CONSTITUTION
WITH PRELIMINARY COMMENTS
Copyright ©2004
By
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
The ideas and conclusions set forth in this draft, including the proposed statutory language and any comments or reporter’s notes, have not been passed upon by the National Conference of Commissioners on Uniform State Laws or the Drafting Committee. They do not necessarily reflect the views of the Conference and its Commissioners and the Drafting Committee and its Members and Reporters. Proposed statutory language may not be used to ascertain the intent or meaning of any promulgated final statutory proposal.
DRAFTING COMMITTEE TO AMEND UNIFORM TRUST CODE (2000)
MAURICE A. HARTNETT, III, Delaware Supreme Court, 144 Cooper Road, Dover, DE 19901, Chair
FRANK W. DAYKIN, 4745 Giles Way, Carson City, NV 89704, Committee Member and Committee on Style Liaison
E. EDWIN ECK, II, University of Montana, School of Law, Missoula, MT 59812
JOHN H. LANGBEIN, Yale Law School, P.O. Box 208215, New Haven, CT 06520
GLEE S. SMITH, P.O. Box 360, 111 E. 8th, Larned, KS 67550
NATHANIEL STERLING, Law Revision Commission, Suite D-1, 4000 Middlefield Road, Palo Alto, CA 94303
RICHARD V. WELLMAN, University of Georgia, School of Law, Athens, GA 30602
DAVID M. ENGLISH, University of Missouri School of Law, Missouri and Conley Avenues, Columbia, MO 65211, Reporter
EX OFFICIO
FRED H. MILLER, University of Oklahoma, College of Law, 300 Timberdell Rd., Room 3056,
Norman, OK 73019, President
REX BLACKBURN, 1673 West Shoreline Dr., Suite 200, P.O. Box 7808, Boise, ID 83702, Division Chair
AMERICAN BAR ASSOCIATION ADVISOR
JOSEPH KARTIGANER, 812 Fifth Ave., New York, NY 10021, American Bar Association Advisor
EXECUTIVE DIRECTOR
WILLIAM H. HENNING, University of Alabama School of Law, Box 870382, Tuscaloosa, AL
35487-0382, Executive Director
WILLIAM J. PIERCE, 1505 Roxbury Rd., Ann Arbor, MI 48104, Executive Director Emeritus
Copies of this Code may be obtained from:
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
211 E. Ontario Street, Suite 1300
Chicago, Illinois 60611
312/915-0195
www.nccusl.org
AMENDMENTS TO THE UNIFORM TRUST CODE (2000)
TABLE OF CONTENTS
SECTION 105. DEFAULT AND MANDATORY RULES
SECTION 110. OTHERS TREATED AS QUALIFIED BENEFICIARIES
SECTION 411. MODIFICATION OR TERMINATION OF NONCHARITABLE IRREVOCABLE TRUST BY CONSENT
SECTION 504. DISCRETIONARY TRUSTS; EFFECT OF STANDARD
SECTION 603. SETTLOR’S POWERS; POWERS OF WITHDRAWAL
SECTION 704. VACANCY IN TRUSTEESHIP; APPOINTMENT OF SUCCESSOR
SECTION 813. DUTY TO INFORM AND REPORT
AMENDMENTS TO THE UNIFORM TRUST CODE (2000)
SECTION 103. DEFINITIONS. In this [Code]:
(1) “Action,” with respect to an act of a trustee, includes a failure to act.
(2) “Beneficiary” means a person that:
(A) has a present or future beneficial interest in a trust, vested or
contingent; or
(B) in a capacity other than that of trustee, holds a power of appointment
over trust property.
(3) “Charitable trust” means a trust, or portion of a trust, created for a charitable
purpose described in Section 405(a).
(4) “[Conservator]” means a person appointed by the court to administer the
estate of a minor or adult individual.
(5) “Environmental law” means a federal, state, or local law, rule, regulation, or
ordinance relating to protection of the environment.
(6) “[Guardian]” means a person appointed by the court [, a parent, or a spouse]
to make decisions regarding the support, care, education, health, and welfare of a minor or adult
individual. The term does not include a guardian ad litem.
(7) “Interests of the beneficiaries” means the beneficial interests provided in the terms of the trust.
(8) “Jurisdiction,” with respect to a geographic area, includes a State or country.
(9) “Person” means an individual, corporation, business trust, estate, trust,
partnership, limited liability company, association, joint venture, government; governmental
subdivision, agency, or instrumentality; public corporation, or any other legal or commercial entity.
(10) “Power of withdrawal” means a presently exercisable general power of appointment other than a power exercisable by a trustee or exercisable by another person only upon consent of the trustee or a person holding an adverse interest.
(11) “Property” means anything that may be the subject of ownership, whether real or personal, legal or equitable, or any interest therein.
(12) “Qualified beneficiary” means a beneficiary who, on the date the beneficiary’s qualification is determined:
(A) is a distributee or permissible distributee of trust income or principal;
(B) would be a distributee or permissible distributee of trust income or principal if the interests of the distributees described in subparagraph (A) terminated on that date;
or
(C) would be a distributee or permissible distributee of trust income or principal if the trust terminated on that date.
(13) “Revocable,” as applied to a trust, means revocable by the settlor without the consent of the trustee or a person holding an adverse interest.
(14) “Settlor” means a person, including a testator, who creates, or contributes property to, a trust. If more than one person creates or contributes property to a trust, each person is a settlor of the portion of the trust property attributable to that person’s contribution except to the extent another person has the power to revoke or withdraw that portion.
(15) “Spendthrift provision” means a term of a trust which restrains both voluntary and involuntary transfer of a beneficiary’s interest.
(16) “State” means a State of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States. The term includes an Indian tribe or band recognized by federal law or formally acknowledged by a State.
(17) “Terms of a trust” means the manifestation of the settlor’s intent regarding a trust’s provisions as expressed in the trust instrument or as may be established by other evidence that would be admissible in a judicial proceeding.
(18) “Trust instrument” means an instrument executed by the settlor that contains terms of the trust, including any amendments thereto.
(19) “Trustee” includes an original, additional, and successor trustee, and a cotrustee.
Preliminary Comments
Section 103(10), the definition of “power of withdrawal” is amended to exclude a possible inference that the term includes a power exercisable by a trustee. For an explanation of the reason for this amendment, see the amendment to Section 504, which addresses a related issue.
SECTION 105. DEFAULT AND MANDATORY RULES.
(a) Except as otherwise provided in the terms of the trust, this [Code] governs the duties and powers of a trustee, relations among trustees, and the rights and interests of a beneficiary.
(b) The terms of a trust prevail over any provision of this [Code] except:
(1) the requirements for creating a trust;
(2) the duty of a trustee to act in good faith and in accordance with the purposes of the trust;
(3) the requirement that a trust and its terms be for the benefit of its beneficiaries, and that the trust have a purpose that is lawful, not contrary to public policy, and possible to achieve;
(4) the power of the court to modify or terminate a trust under Sections 410 through 416;
(5) the effect of a spendthrift provision and the rights of certain creditors and assignees to reach a trust as provided in [Article] 5;
(6) the power of the court under Section 702 to require, dispense with, or modify or terminate a bond;
(7) the power of the court under Section 708(b) to adjust a trustee’s compensation specified in the terms of the trust which is unreasonably low or high;
[(8) the duty under Section 813(b)(2) and (3) to notify qualified beneficiaries of an irrevocable trust who have attained 25 years of age of the existence of the trust, of the identity of the trustee, and of their right to request trustee’s reports;]
[(9) the duty under Section 813(a) to respond to the request of a [qualified] beneficiary of an irrevocable trust for trustee’s reports and other information reasonably related to the administration of a trust;]
(10) the effect of an exculpatory term under Section 1008;
(11) the rights under Sections 1010 through 1013 of a person other than a trustee or beneficiary;
(12) periods of limitation for commencing a judicial proceeding; [and]
(13) the power of the court to take such action and exercise such jurisdiction as may be necessary in the interests of justice [; and
(14) the subject-matter jurisdiction of the court and venue for commencing a proceeding as provided in Sections 203 and 204].
Preliminary Comments
Sections 105(b)(8) and 105(b)(9) address the extent to which a settlor may waive trustee notices and other disclosures to beneficiaries otherwise required under the Code. These subsections have generated more discussion in jurisdictions considering enactment than have any other provisions in the Code. A majority of the enacting jurisdictions have modified these provisions but not in a consistent way. This lack of agreement and resulting variety of approaches is expected to continue as additional states enact the Code.
Placing these sections in brackets signals that uniformity is not expected. States may elect to enact these provisions without change, delete these provisions, or enact them with modifications. In Section 105(b)(9), an internal bracket has been added to make clear that an enacting jurisdiction may elect to limit to the qualified beneficiaries the obligation to respond to a beneficiary’s request for information.
The placing of these provisions in brackets does not mean that the Standby Committee recommends that an enacting jurisdiction delete Sections 105(b)(8) and 105(b)(9). The comment to Section 105 will be expanded to add additional discussion of the policy factors that an enacting jurisdiction may wish to consider in formulating its provision on this issue.
SECTION 110. OTHERS TREATED AS QUALIFIED BENEFICIARIES.
(a) Whenever notice to qualified beneficiaries of a trust is required under this [Code] , the trustee must also give notice to any other beneficiary who has sent the trustee a request for notice.
(b) A charitable organization expressly designated to receive distributions under the terms of a charitable trust has the rights of a qualified beneficiary under this [Code] if the charitable organization, on the date the charitable organization’s qualification is being determined:
(A) is a distributee or permissible distributee of trust income or principal;
(B) would be a distributee or permissible distributee of trust income or
principal upon the termination of the interests of other distriibutees or permissible distributees then receiving or eligible to receive distributions; or
(C) would be a distributee or permissible distributee of trust income or principal if the trust terminated on that date. or a
(c) A person appointed to enforce a trust created for the care of an animal or another noncharitable purpose as provided in Section 408 or 409 has the rights of a qualified beneficiary under this [Code].
(c) [(d) The [attorney general of this State] has the rights of a qualified beneficiary with respect to a charitable trust having its principal place of administration in this State.]Preliminary Comments
The amendments to this Section respond to various concerns being expressed in the states considering enactment of the Code.
Subsection (b) is amended to better conform this provision to the drafter’s original intent. Charitable trusts do not have beneficiaries in the usual sense. Yet, such trusts are often created to benefit named charitable organizations. The effect of the amendment, which is based on the definition of qualified beneficiary in Section 103, is to provide that such designated charitable organizations are entitled to the rights of a qualified beneficiary only if they hold an interest similar to that of a qualified beneficiary in a noncharitable trust. The effect of the amendment is to exclude charitable organizations, which even though named in the terms of the trust, hold only remote remainder interests.
The amendment to subsection (d) recognizes that the role of the attorney general in the enforcement of charitable trusts varies greatly in the states. In some states, the legislature may prefer that the attorney general be granted the rights of a qualified beneficiary. In other states, the attorney general may play a lesser role in enforcement. By placing subsection (d) in brackets the drafters hope that the state considering enactment will conform this provision to match the particular role that the attorney general plays in the enforcement of charitable trusts in that state. Some states may prefer to delete this provision. Other states might provide that the attorney general has the rights of a qualified beneficiary only for trusts in which no charitable organization has been designated to receive distributions. Yet other states may prefer to enact the provision without change.
SECTION 411. MODIFICATION OR TERMINATION OF NONCHARITABLE IRREVOCABLE TRUST BY CONSENT.
(a) A noncharitable irrevocable trust may be modified or terminated upon consent of the settlor and all beneficiaries, even if the modification or termination is inconsistent with a material purpose of the trust. A settlor’s power to consent to a trust’s modification or termination may be exercised by an agent under a power of attorney only to the extent expressly authorized by the power of attorney or the terms of the trust; by the settlor’s [conservator] with the approval of the court supervising the [conservatorship] if an agent is not so authorized; or by the settlor’s [guardian] with the approval of the court supervising the [guardianship] if an agent is not so authorized and a conservator has not been appointed.
(b) A noncharitable irrevocable trust may be terminated upon consent of all of the beneficiaries if the court concludes that continuance of the trust is not necessary to achieve any material purpose of the trust. A noncharitable irrevocable trust may be modified upon consent of all of the beneficiaries if the court concludes that modification is not inconsistent with a material purpose of the trust.
(c) A spendthrift provision in the terms of the trust is not presumed to constitute a material purpose of the trust.
(d) Upon termination of a trust under subsection (a) or (b), the trustee shall distribute the trust property as agreed by the beneficiaries.
(e) (d) If not all of the beneficiaries consent to a proposed modification or termination of the trust under subsection (a) or (b), the modification or termination may be approved by the court if the court is satisfied that:
(1) if all of the beneficiaries had consented, the trust could have been modified or terminated under this section; and
(2) the interests of a beneficiary who does not consent will be adequately protected.
Preliminary Comments
Subsection (c), which is being deleted, provided that a spendthrift provision is not presumed to constitute a material purpose of the trust. Several states that have enacted the Code have not agreed with this conclusion, however, and have either deleted this provision or, in at least one case, have reversed the presumption to provide that a spendthrift provision is presumed to constitute a material purpose of the trust. Given these developments, the Standby Committee has concluded that it is better to leave the issue of whether a spendthrift provision constitutes a material purpose in a particular case to the courts instead of trying to provide a rule by legislation.
SECTION 504. DISCRETIONARY TRUSTS; EFFECT OF STANDARD.
(a) In this section, “child” includes any person for whom an order or judgment for child support has been entered in this or another State.
(b) Except as otherwise provided in subsection (c), whether or not a trust contains a spendthrift provision, a creditor of a beneficiary may not compel a distribution that is subject to the trustee’s discretion, even if:
(1) the discretion is expressed in the form of a standard of distribution; or
(2) the trustee has abused the discretion.
(c) To the extent a trustee has not complied with a standard of distribution or has abused a discretion:
(1) a distribution may be ordered by the court to satisfy a judgment or court order against the beneficiary for support or maintenance of the beneficiary’s child, spouse, or former spouse; and
(2) the court shall direct the trustee to pay to the child, spouse, or former spouse such amount as is equitable under the circumstances but not more than the amount the trustee would have been required to distribute to or for the benefit of the beneficiary had the trustee complied with the standard or not abused the discretion.
(d) This section does not limit the right of a beneficiary to maintain a judicial proceeding against a trustee for an abuse of discretion or failure to comply with a standard for distribution.
(e) The provisions of this section shall apply even if the beneficiary is the trustee or co-trustee of the trust.
Preliminary Comments
Trusts are frequently drafted in which a trustee is also a beneficiary. A common example is what is often referred to as a Bypass Trust, under which the settlor’s spouse will frequently be named as both trustee and beneficiary. An amount equal to the exemption from federal estate tax will be placed in the Bypass Trust, and the trustee, who will often be the settlor’s spouse, will be given discretion to make distributions to the beneficiaries, a class which will usually include the spouse/trustee.
The UTC, as currently drafted, does not specifically address the issue of whether a creditor of a beneficiary may reach the interest of a beneficiary who is also a trustee. However, Restatement (Third) of Trusts §60, comment g, which was approved by the American law Institute in 1999, does mandate this result. Because the UTC is supplemented by the common law (see UTC Section 106), this Restatement rule may might also apply in states enacting the UTC. The Standby Committee has concluded that adoption of the Restatement rule would unduly disrupt estate planning and should be rejected. Consequently, Section 504 is amended to provide that the provisions of this section, which generally prohibit a creditor of a beneficiary from reaching a beneficiary’s discretionary interest, apply even if the beneficiary is also a trustee or cotrustee.
In addition, the definition of “power of withdrawal” in Section 103 is amended to clarify that a power of withdrawal does not include a power exercisable solely by the trustee, thereby precluding a claim that the right of a trustee/beneficiary to make discretionary distributions for the trustee/beneficiary’s own benefit results in a an enforceable claim of the trustee/beneficiary’s creditors to reach the trustee/beneficiary’s interest as provided in Section 505(b).
SECTION 603. SETTLOR’S POWERS; POWERS OF WITHDRAWAL.
(a) While a trust is revocable [and the settlor has capacity to revoke the trust], rights of the beneficiaries are subject to the control of, and the duties of the trustee are owed exclusively to, the settlor.
(b) During the period the power may be exercised, the holder of a power of withdrawal has the rights of a settlor of a revocable trust under this section to the extent of the property subject to the power.
Preliminary Comments
Section 603 generally provides that while a trust is revocable, all rights that the trusts’s beneficiaries would otherwise possess are subject to the control of the settlor. Section 603, however, negates the settlor’s control if the settlor is incapacitated. In such case, the beneficiaries are entitled to assert all rights provide to them under the Code.
Two issues have arisen concerning this incapacity limitation. First, because determining when a settlor is incapacitated is not always clear, concern has been expressed that it will often be difficult in a particular case to determine whether the settlor has become incapacitated and the setlor’s control of the beneficiary’s rights have ceased. Second, concern has been expressed that the rule in this section should be the same as the rule in the case of the will. In the case of a will, the devisees have no right to know of the dispositions made in their favor until the testator’s death, whether or not the testator is incapacitated. Concluding that uniformity among the states on this issue is not essential, the Standby Committee has decided to place the reference to the settlor’s incapacity in Section 603(a) in brackets. Enacting jurisdictions are free to strike the incapacity limitation or, similar to the Missouri enactment, provide a more precise definition of when a settlor is incapacitated.
SECTION 704. VACANCY IN TRUSTEESHIP; APPOINTMENT OF SUCCESSOR.
(a) A vacancy in a trusteeship occurs if:
(1) a person designated as trustee rejects the trusteeship;
(2) a person designated as trustee cannot be identified or does not exist;
(3) a trustee resigns;
(4) a trustee is disqualified or removed;
(5) a trustee dies; or
(6) a [guardian] or [conservator] is appointed for an individual serving as trustee.
(b) If one or more cotrustees remain in office, a vacancy in a trusteeship need not be filled. A vacancy in a trusteeship must be filled if the trust has no remaining trustee.
(c) A vacancy in a trusteeship of a noncharitable trust that is required to be filled must be filled in the following order of priority:
(1) by a person designated in the terms of the trust to act as successor trustee;
(2) by a person appointed by unanimous agreement of the qualified beneficiaries; or
(3) by a person appointed by the court.
(d) A vacancy in a trusteeship of a charitable trust that is required to be filled must be filled in the following order of priority:
(1) by a person designated in the terms of the trust to act as successor trustee;
(2) by a person selected by the charitable organizations expressly designated to receive distributions under the terms of the trust [if the [attorney general] concurs in the selection]; or
(3) by a person appointed by the court.
(e) Whether or not a vacancy in a trusteeship exists or is required to be filled, the court may appoint an additional trustee or special fiduciary whenever the court considers the appointment necessary for the administration of the trust.
Preliminary Comments
The amendment to subsection (d)(2) of this Section is a conforming amendment to the amendment in Section 110(d). If an enacting jurisdiction elects to delete Section 110(d), which provides that the attorney general has the rights of a qualified beneficiary with respect to charitable trusts having a principal place of administration in the state, then the enacting jurisdiction should also modify subsection (d)(2) of this Section, which requires that the attorney general concur in the selection of a successor trustee nominated by a designated charitable organization.
SECTION 813. DUTY TO INFORM AND REPORT.
(a) A trustee shall keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests. Unless unreasonable under the circumstances, a trustee shall promptly respond to a beneficiary’s request for information related to the administration of the trust.
(b) A trustee:
(1) upon request of a beneficiary, shall promptly furnish to the beneficiary a copy of the trust instrument;
(2) within 60 days after accepting a trusteeship, shall notify the qualified beneficiaries of the acceptance and of the trustee’s name, address, and telephone number;
(3) within 60 days after the date the trustee acquires knowledge of the creation of an irrevocable trust, or the date the trustee acquires knowledge that a formerly revocable trust has become irrevocable, whether by the death of the settlor or otherwise, shall notify the qualified beneficiaries of the trust’s existence, of the identity of the settlor or settlors, of the right to request a copy of the trust instrument, and of the right to a trustee’s report as provided in subsection (c); and
(4) shall notify the qualified beneficiaries in advance of any change in the method or rate of the trustee’s compensation.
(c) A trustee shall send to the distributees or permissible distributees of trust income or principal, and to other qualified or nonqualified beneficiaries who request it, at least annually and at the termination of the trust, a report of the trust property, liabilities, receipts, and disbursements, including the source and amount of the trustee’s compensation, a listing of the trust assets and, if feasible, their respective market values. Upon a vacancy in a trusteeship, unless a cotrustee remains in office, a report must be sent to the qualified beneficiaries by the former trustee. A personal representative, [conservator], or [guardian] may send the qualified beneficiaries a report on behalf of a deceased or incapacitated trustee.
(d) A beneficiary may waive the right to a trustee’s report or other information otherwise required to be furnished under this section. A beneficiary, with respect to future reports and other information, may withdraw a waiver previously given.
(e) Subsections (b)(2) and (b)(3) of this section shall apply only to trustees who accept a trusteeship on or after [the effective date of this [Code]], to irrevocable trusts created on or after [the effective date of this [Code]], and to revocable trusts which become irrevocable on or after [the effective date of this [Code]].
Preliminary Comments
Subsection (b)(2) and (b)(3) require that certain notices be sent by the trustee to the qualified beneficiaries within 60 days of the trustee’s acceptance of office, or within 60 days after the creation of an irrevocable trust or the date a revocable trust becomes irrevocable. Subsection (e) is added to make clear the drafting committee’s intent that these requirements are not to be retroactively applied to trustee acceptances and to trusts which have become irrevocable prior to the effective date of the Code.