Category Archives: Trusts

A Quick Look at the new Massachusetts Uniform Trust Code

A major law entitled the Massachusetts Uniform Trust Code [“MUTC”] has been enacted as of July 8, 2012.  It generally replaces and expands upon Article VII: Trusts of the MUPC [which became effective April 1, 2012].  The MUTC applies to ALL trusts regardless of when done, EXCEPT AS OTHERWISE PROVIDED IN THE ACT [see §§ 61 to 65].  [So, for example, §502 on spendthrift clauses, §602 on revocable trust presumption, §703 majority co-trustee decisions, apply only to trusts created AFTER the effective date.]  An act done BEFORE the effective date shall not be affected by the MUTC.  But all trusts will be legally reviewed henceforth by the MUTC provisions. There are new useful tools for estate planning, new clarifications, and several new rules that affect trust creation and operation.

Some highlights of the 10 MUTC Articles is as follows:

Article 1: General Provisions & Definitions:  This section adds a new definition for Qualified Beneficiaries who are entitled to certain notices, and Spendthrift Provisions which require restraining transfers both voluntary and involuntary.  This article makes it clear that the terms of a trust prevail over the MUTC with the exception of 10 key areas listed in Section 105.  So the rules of the MUTC are default rules that apply subject to modification by the Settlor.  An interesting new concept is the Non-Judicial Settlement Agreements that encourage settlements amongst parties without court intervention or approval provided the terms are legal [e.g., trust interpretation, approval of accounts, trustees liability and powers, etc.]  The MUPC rules of construction apply to the MUTC for documents that are affected by both.

Article 2: Judicial Proceedings:  This section provides rules for a court intervening in the administration of a trust and personal jurisdiction over trustees and beneficiaries regarding trust matters.  However, this section also makes clear that a court has no authority to intervene or have continuing supervision of a trust unless it is invoked by an interested person or by law.

Article 3: Representation:  This section introduces a new MUPC concept known as “virtual representation” [see also MUPC 1-403].  Generally speaking, a guardian can now represent a ward [or protected person if no custodian], and a parent may represent a minor [or unborn child] if no guardian/conservator appointed.  A person with a substantially identical interest can represent minors, etc. provided there is no conflict of interest.  This reduces the need for guardian ad litems.

Article 4: Creation, Validity, Modification, and Termination of Trust: sets forth the requirements for creating a trust and, if created in another jurisdiction, is valid if it complies with the law of the jurisdiction where created and executed or where the Settlor was domiciled, had a place of abode, or was a national; where a trustee was domiciled or had a place of business; or where any trust property was located.  A new section allows trusts for animals [a/k/a “PET TRUSTS”] and the court may appoint a person to enforce the trust if necessary.  [This law replaces MGL c. 203 §3C.]  This section also now allows a so-called Purpose Trust – a non-charitable trust without an identifiable beneficiary but with just a purpose only [e.g., vacation home].  This section liberalizes trust modifications and terminations. It has means for a trust to terminate automatically and new methods to modify or terminate trust with certain parties consent [even if irrevocable] provided it is not inconsistent with a material trust provision, and if for unanticipated circumstances, the trust is uneconomic, or to conform the trust to the Settlor’s intentions.  A trustee can also now combine or divide a trust.

Article 5: Creditors Claims:  This section sets out the traditional rule that the assets of a revocable trust are generally subject to Settlors’ creditors during their life.  It also makes it clear that a creditor can reach trust assets if there are no beneficiary spendthrift provisions in same – but the court can limit the amount. Under the MUTC, a spendthrift provision in a trust created after the enactment of the MUTC is valid only if it limits both voluntary and involuntary transfers [“subject to a spendthrift trust”] of a beneficiary’s interest [Creditors can’t REACH and Beneficiaries can’t ASSIGN].  There are also new rules on how much the creditors can reach an irrevocable trust and that trust property is not subject to a Trustees personal obligations.

Article 6: Revocable Trusts:  This section states that trusts created after the date of the MUTC are presumed revocable unless the trust states otherwise [MUTC reverses old default rule].  While the Settlor is still alive, the trustees duties are owed to the Settlor.  This section includes a time limitation to contest a revocable trust after the Settlor’s death to provide finality.

Article 7: Office of Trustee:  This section includes a comprehensive approach to how a trustee accepts or declines the office, vacancies, resignation and removal, and compensation and expense reimbursement rules for Trustees.  For trusts created after the MUTC, it allows majority vote decision if it can’t be done unanimously UNLESS the trust requires unanimous decision.  [MUTC reverses old default rule].  Section 706 has a comprehensive list of reasons why a trustee can be removed.

Article 8: Duties and Powers of Trustees:  This section addresses the conflict of interest issues that have dogged trusts to date.  It includes defining the duty to administer the trust, duty of loyalty, duty of impartiality, duty of prudent administration, and delegation of duties. It also includes rules for administration costs, powers to direct, protection of assets, record keeping, duty to inform and report [i.e., “reasonably informed”], distribution upon termination.  It also allows for “Directed Trustees”. New trustees have 30 days after acceptance of trusteeship to inform qualified beneficiaries of their name and address.  Trustees must send annual statements of account to current beneficiaries [except those who waive same] and upon request to other beneficiaries.

Lastly, and very importantly, it includes a comprehensive list of 27 specific powers of a trustee and general powers [§815] as well.  The new duty to “inform and report” to beneficiaries adds transparency by “reasonably informed” notice compliance requirements. Ergo, we should discuss your trust terms regarding same.

Article 9: THIS SECTION WAS RESERVED.

Article 10: Liability of Trustee and Rights of Persons dealing with Trustee:  The first part of this section lists 10 things a court can do in case of a breach of a trust which is not new but now is specified. The next part deals with the statute of limitations for a beneficiary to file a lawsuit.  Generally speaking, a trustee is NOT personally liable with certain exceptions, and trust terms exculpating same are allowable and enforceable except for such things as bad faith, reckless indifference, or abuse of a confidential relationship with the Settlor.  This section deals with liability of third parties dealing with a trust, and trust certifications related thereto.

Remember, the purpose of an effective strategy for estate planning is the following:  (1) to choose your heirs, (2) avoid probate, (3) eliminate or reduce federal estate taxes, (4) avoid conservatorship, (5) maintain control over your assets, (6) maintain flexibility, (7) maintain privacy, (8) provide for health care and other decisions if you become incapacitated, (9) provide for funeral and burial instructions, and (10) make the administration of your estate as quick, inexpensive, and easy as possible for your family.

The above information is strictly highlights only and not specific legal advice so take a look at the new law and see if there are issues that may impact your trust and then speak to your attorney about updating it.

How to restart the economy

The term is written on the back of a dollar bill. D.H Lawrence wrote a love poem about it. Stephen M. R. Covey wrote a famous business book about the “speed” of it. Ronald Reagan used it to describe our nuclear arms position with Communist Russia. General Robert E. Lee used the term to describe leadership traits. And lastly, Mother Theresa used it to describe her relationship with God. What is this term that all these powerful people have used so eloquently? The term is simply “trust”. Why has Wall Street still not convinced people to get back into the investment game? Simply stated, they lost our trust.  How do you regain trust?  As they say in my wife’s home state: “I am from Missouri – you have got to show me.” And each year Wall Street Christmas bonus press is not one of them.