New Jersey Enacts Uniform Trust Code
On July 17, 2016, New Jersey’s version of the Uniform Trust Code became effective. The objective of the Uniform Trust Code, which has now been enacted in approximately 30 states, is to provide more certainty for beneficiaries, trustees and their advisors that the administration of trusts will be handled similarly across state lines. The importance of this new law is more significant than many might anticipate. It applies to all trusts, including those enacted before the law became effective, with some limited exceptions.
Highlights of major changes under New Jersey’s Uniform Trust Code (“UTC”) include the following:
Limited room for secret trusts
Settlors sometimes create secret trusts — also called silent or quiet trusts — to preserve the ability not to disclose information, even a trust’s existence, to beneficiaries. Under the UTC, trustees have a duty to disclose information to qualified beneficiaries, furnish a copy of the trust instrument on request, and respond to a qualified beneficiary’s request for information. These duties can be negated by specific terms of the trust, provided, however, that the terms of the trust cannot change the trustee’s duty to respond to a request of a qualified beneficiary who has attained the age of 35, for a copy of the trust instrument or for other information reasonably related to the administration of the trust.
The UTC defines “qualified beneficiary” as a beneficiary who is currently receiving income or principal from the trust, would be receiving income or principal if the current beneficiary’s interests terminated, or would receive income or principal if the trust terminated.
Modification and termination of non-charitable irrevocable trust may be achieved without a court proceeding
Even if a trust has a spendthrift clause, if the trustee and all beneficiaries agree, a modification or termination of a trust is now permitted, even without the agreement of the settlor, provided that a modification is not inconsistent with a material purpose of the trust.
Ability of beneficiaries to fill a vacancy in office of trustee
If the office of trustee lapses because the trust instrument does not name a successor trustee, the UTC provides that a successor trustee may be designated by unanimous agreement of qualified beneficiaries.
Authorization of the use of directed trusts and trust protectors
A directed trust allows someone other than the trustee to make decisions relating to the trust. By way of example, a financial advisor could be designated to make financial decisions, while a corporate trustee could be designated to make distribution and administrative decisions. Also, a trust can now authorize a person other than the trustee to direct the modification or termination of the trust.
In light of these important changes, clients whose estate or lifetime plans utilize New Jersey trusts are wise to review those plans with legal counsel.