By: Steven A. Loeb, Esq. and Heidi I. Hansen, Esq.
New Jersey has enacted its own version of the Uniform Trust Code (“UTC”) which will go into effect on July 17, 2016. The UTC is complex set of new laws governing trusts and it applies both to new and existing trusts. Below, we have summarized a few the UTC provisions that we think you will be most interest in knowing about.
Death of the Secret Trust (a/k/a the Duty to Disclose)
Many parents who establish trusts for their children and grandchildren do not want them to know how much is being held in trusts for them and, in some cases, they do not even want them to know of the trust’s existence. Trusts are usually kept secret out of the fear that a beneficiary will become the proverbial “trust fund kid” who doesn’t contribute to society or worse. Typically, in these cases, the grantors of the trust will keep close watch over the trustee’s administration until they feel that it’s time to inform the beneficiary about the trust. However, under the UTC, trustees are now required to keep “qualified beneficiaries” reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests. A “qualified beneficiary” is essentially the current beneficiaries, those next in line to be beneficiaries if the current beneficiaries cease being beneficiaries and anyone who would be entitled to income or principal if the trust terminated. In addition, trustees must also provide a “beneficiary” a copy of the trust instrument upon request and must promptly respond to requests for information from a “beneficiary” related to the administration of the trust unless the request is unreasonable under the circumstances. A “beneficiary” is more or less anyone that has any interest in the trust whether it is a present, future, contingent or vested interest. Therefore, the number of beneficiaries requesting information could be sizeable in some cases.
Semi-Secret Trusts Allowed
Under the UTC, the creator of the trust can limit a trustee’s duty to disclose trust information to beneficiaries if the trust agreement specifically provides for such limitation. However, the disclosure requirement cannot be completely avoided. In any event, a trustee must provide a “qualified beneficiary” who is at least 35 years old a copy of the trust and other information reasonably related to the administration of the trust upon request. Unfortunately, it is unlikely that existing trusts contain language limiting a trustee’s obligation to disclose information since there has not historically been a duty to disclose. Fortunately, the UTC provides a mechanism that could permit the existing trust to be combined with another trust that contains the disclosure limitation language (see Combinations and Division of Trusts below). The trade-off of having a semi-secret trust is that the period of time in which an action may be brought against a trustee for breach is longer than if adequate disclosure is made (see Limitation on Actions Against Trustees below).
Modifications of Existing Trusts
After July 17, 2016, existing trusts may be modified with the consent of all of the trustees and beneficiaries. However, the modification cannot be inconsistent with a “material purpose” of the trust. In other words, the modification cannot be counter to the objectives and purposes of the grantor when the trust was created. The term “material purpose” is not defined in the UTC and is apparently to be determined on a case by case basis.
Combinations and Division of Trusts
The UTC permits trustees of two or more trusts to combine the trusts into a single trust if the result does not “impair rights of any beneficiary or adversely affect achievement of the purposes of the trust.” Trusts may be combined even if the trusts were created by different grantors, under different instruments and have different trustees. Similarly, trustees of a single trust may divide the trust into two or more separate trusts. The UTC does not require consent from the beneficiaries or court approval to merge or divide trusts, but trustees may seek such consent or approval, if they choose.
Limitation on Actions Against Trustees
If a trustee provides the beneficiary with 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 or provides a report that adequately discloses the existence of a potential claim for breach that informs the beneficiary of the time allowed for commencing a proceeding, then the beneficiary is barred from commencing a proceeding against the trustee for breach of trust six (6) months after the information is provided. Otherwise, a beneficiary may commence an action within five (5) years of: (1) the removal, resignation, or death of the trustee; (2) the termination of the beneficiary's interest in the trust; or (3) the termination of the trust, whichever occurs first. In addition, a beneficiary may bring an action until five (5) years after the beneficiary: (1) has attained majority; (2) has knowledge of the existence of the trust; and (3) has knowledge that such beneficiary is or was a beneficiary of the trust.
For more information please contact via email Steven A. Loeb, Esq. or by phone at 973-538-4700 ext. 229.
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