New Jersey Enacts Uniform Trust Code into Law

While this may not sound like big news, it is actually very exciting that New Jersey has finally enacted the Uniform Trust Code (UTC) into law.  The new law will go into effect on July 17, 2016.  When it does, New Jersey will join Pennsylvania, Florida and a majority of other states in adopting most of the provisions of the UTC.

What does this mean for you though?  For the most part, if you have have a trust and have ever said to yourself, "The trustees and beneficiaries all agree this is outdated and certain provisions should be modified", this law is for you!

The best part about the UTC is that it makes it easier to modify a trust without going to court to have it amended.  There are obviously certain limitations, but simple things are much easier including:
1)  like moving the trust from one jurisdiction to another;
2)  interpreting confusing terms of a trust;
3)  approving the resignation of a trustee;
4)  appointing a new trustee; 
5)  granting or removing a trustee power; 
6)  determining trustee compensation; 
7)  approving an accounting; 
8)  terminating a trust (if not inconsistent with terms of trust); 
9)  reforming mistakes; and
10)  allowing a parent to bind minor children and unborn children if there is no conflict of interest.

Some other interesting provisions in the new law include:
1)  Even if a trust says that a beneficiary is not to be told about a trust, the Trustee must respond to the requests of certain beneficiaries and give them a copy of the trust document and other information related to the administration of the trust.
2)  It clarifies some of the terms of trusts for animals/pets.
3)  It clarifies the time-frame for a person to contest the validity of a trust.
4)  It clarifies to what extent and how a trustee can rely on financial advisers.

The new law, while effective starting on July 17, 2016, will apply to all trusts, whenever created.  This does not necessarily mean if you have a trust that you need to amend it.  However, some people may want to amend the trusts as soon as possible if:
1)  You really want to restrict your heirs from having the ability to modify the trust; or
2)  You have a split interest charitable trust based in New Jersey (although it is unclear if the charity or the Attorney General of NJ will consent to this); or
3)  You know that the trust document has a mistake and you'd rather try to convince the people alive now to fix it than wait for the next generation.

Follow up to Pet Trusts

Following Leona Helmsley's bequest of $12,000,000 to her dog, the USAToday published a nice article about the importance of setting up a pet trust for your beloved animals. I note that the article contains a nice chart detailing which states allow for the creation of a pet trusts.

Animal/Pet Trusts

New Jersey passed legislation a short while ago permitting the creation of a Pet Trust under: N.J. Stat. Ann. § 3B:11-38.

1. The new law states:

a. A trust for the care of a domesticated animal is valid. The intended use of the principal or income may be enforced by a person designated for that purpose in the trust instrument, a person appointed by the court, or a trustee. The trust shall terminate when no living animal is covered by the trust, or at the end of 21 years, whichever occurs earlier.

b. Except as expressly provided otherwise in the trust instrument, no portion of the trust's principal or income may be converted to the use of the trustee or to any use other than for the benefit of the animal designated in the trust.

c. Upon termination of the trust, the trustee shall transfer the unexpended trust property as directed in the trust instrument. If no directions for such transfer exist, the property shall pass to the estate of the creator of the trust.

d. The court may reduce the amount of the property transferred if it determines that the amount substantially exceeds the amount required for the intended use. The amount of any reduction shall be transferred as directed in the trust instrument or, if no such directions are contained in the trust instrument, to the estate of the creator of the trust.

e. If no trustee is designated or if no designated trustee is willing or able to serve, a court shall appoint a trustee and may make such other orders and determinations as are advisable to carry out the intent of the creator of the trust and the purpose of this act.

2. Prior Law - Previously, an animal trust existed as an honorary trust (i.e. there was no judicial enforcement).

3. Planning Points

a. Unlike most other trusts, the beneficiaries of an animal trust literally cannot talk for themselves, so the Grantor/Pet Owner must clearly indicate what level of care should be given to the surviving pet. The document should also clarify what payments may be made to the pet’s caretaker.

b. A remainder beneficiary should always be considered (and it is usually inadvisable to make the caretaker the remainderman).

c. Many animals live longer than 21 years, so a truly trusted caretaker and trustee should be considered. Any animal trust that is in excess of 21 years likely continues as an honorary trust.

d. The animal should be clearly identified to prevent fraud.

4. Tax Aspects

a. A Pet Trust is taxed as a complex trust that has not made any distributions. Revenue Ruling 76-4876.

b. In general, a trust's income is subject to graduated income taxation at the same rates as individuals with the highest marginal rate of 35% taking effect after only $10,050 (for 2006) of income, a significant detrimental income tax effect. Some commentators have reported that the IRS will tax these trusts at a marginal rate that is lower than that of the average trust.