Under the new trust law, you have the power to change these rules:
- The ability to designate who is entitled to receive an accounting of trust prior to distribution and who can see which parts of the trust document after death.
What it means: There are many circumstances where it may not be desirable to notify certain people of a trust’s existence and give them accountings of the trust assets, especially if there are second marriages involved. This rule can help you cut off some of those disclosures to maintain the privacy of other beneficiaries. However, if someone is entitled to receive current income under the trust or if a person is entitled to receive a current percentage of the trust, they must receive an annual accounting.
- You have a duty to provide an accounting to presumptive remainder beneficiaries.
What it means: A presumptive remainder beneficiary is a beneficiary who, on the date you look at the trust:
- (1) would be eligible to receive a distribution of income or principal if the trust terminated on that date, or
- (2) would be eligible to receive a distribution if the interest of all beneficiaries ended on that date without causing the trust to terminate.
This provision requires the trustee to provide accountings to these types of contingent beneficiaries. For example, if your trust gives income and some assets to your spouse and your trust distributes its remaining assets to your children after your spouse dies, the new law requires your spouse to give an accounting of his or her trust to your children each year. The trust document can eliminate this requirement to avoid this sometimes uncomfortable situation.
- The trustee has a duty to notify qualified beneficiaries of a proposed transfer of the trust’s principal place of administration at least 60 days prior to initiating the transfer.
What it means: This rule applies when the trustee moves the location of a trust to a new state (to avail itself of that new state’s trust laws) or there is a new trustee in another state. Under this rule, a qualified beneficiary can object and stop the transfer. However, the trust code has a safe harbor provision for trustees. The trustee has no duty to inform beneficiaries or interested parties of this section, or to review the trust to determine what action it needs to take.
- If the trust property has a value of less than $100,000, the trustee may terminate the trust if continuing the trust will substantially impair the ability of trust to accomplish its purpose.
What it means: If you think it’s time to wind down a trust, you can make that call (or not) as a trustee under the new rules, even if the trust document does not permit it.
- The trustee has 120 days to determine if he or she wants to accept or decline trusteeship.
What it means: If you are appointed a trustee and you do absolutely nothing for the first 120 days, the law deems that you have declined to be a trustee. Of course, the trust language can change this or even state what actions you need to take to accept the office of trustee. If the trust does not describe how to accept the office, the trustee can accept by taking delivery or custody of trust property, exercising trustee powers over the trust assets, performing trustee duties, or by any other method. This rule also has some flexibility under the new trust code.
- A trustee can delegate duties and powers, but shall exercise reasonable care, skill, and caution in 1) selecting an agent, 2) establishing the scope and terms of delegation, and 3) periodically reviewing the agent’s actions.
What it means: The new law broadens how much a trustee can delegate, allowing them to assign discretionary powers to others in certain circumstances. By exercising reasonable care, the trustee is not liable for the actions of these agents.
- A trustee has a duty to invest and manage trust assets to comply with the Illinois Prudent Investor Rule. If modified, a trustee is not liable to the beneficiary for the trustee’s reasonable and good faith reliance on express provisions.
What it means: This rule requires the trustee, in addition to typical investment considerations, to consider the environmental, social and governance considerations when making investment decisions. This rule can be expanded, restricted, eliminated or otherwise altered by the trust document.
So how does this all affect my planning?
There are a lot of moving parts in the new trust law, which is why now is the ideal time to review your own planning documents and make the appropriate adjustments. An estate planning professional can help you update your plans to adjust the rules you don’t like – and make sure your trust protects you and your family when it matters.
Stay tuned for next month, when we’ll review the steps to take if you’re offered trusteeship of a trust.