On July 12, 2019, Governor Ned Lamont signed
House Bill 7104, An Act Concerning the Adoption of the Connecticut Uniform Trust Code. It became Public Act 19-137 (CUTC). It will be effective January 1, 2020.
Connecticut has never had a comprehensive statute covering trust law. It relied solely on the Connecticut common law (i.e., judicial decisions) and a smattering of trust statutes to clarify the rules regarding the interpretation and enforcement of trusts. The Estates & Probate Section of the Connecticut Bar Association tried for decades to pass the Uniform Trust Code in Connecticut. Starting in 2020, Connecticut trust and estate lawyers will need to consult the new trust law before deciding what course of action to take. We will attend many talks and seminars learning the new law.
The Connecticut Uniform Trust Code covers trusts in a Will (i.e., testamentary trusts) and trusts effective during life (i.e., inter vivos trusts). It covers Connecticut irrevocable trusts as well as revocable trusts. It affects charitable trusts as well as private trusts.
CUTC allows the creation of directed trusts – trusts that allow the division of trust duties among a group of trustees. For example, the person who signs the Trust (“the settlor”) can now have one Trustee manage investments and another Trustee with management experience run a business.
CUTC made Connecticut the 19th state to authorize domestic asset protection trusts (DAPT). Starting January 1, 2020, you can put assets in an irrevocable trust with yourself as a beneficiary, and, certain creditors cannot attach or compel a distribution from the trust. The Trustee must be in Connecticut. Such a trust will not thwart child support or alimony claims. The new DAPT cannot circumvent state or federal Medicaid laws.
The new law also allows dynasty trusts. CUTC extends the rule against perpetuities from 90 years to 800 years. Connecticut residents can now put their vacation home in a trust and not worry that the trust would terminate in the future. If properly drafted, such trusts can continue for multiple generations without incurring gift, estate or generation-skipping transfer taxes.
CUTC also clarifies the rights of beneficiaries to notice of changes in a trust, trust accountings, trust administration, or any material facts necessary for the beneficiaries to protect their interests. For instance, even if a charity is a remainder beneficiary, the Connecticut charitable beneficiary and the Connecticut Attorney General must receive notice. As this notice provision does not apply to charitable bequests that are subject to powers of appointment, beginning in 2020, more trusts with charitable beneficiaries may include powers of appointment to allow the settlor to change the beneficiary.
A Trustee has an affirmative duty to respond to a beneficiary’s request for information reasonably related to the administration of the trust. For trusts created in 2020 and thereafter, Trustees must notify qualified beneficiaries of the trust’s existence, the settlor’s identity, the right to request a copy of the trust, and a
beneficiary’s right to request a trustee’s report. Trustees must report annually, and upon termination of the trust, to current beneficiaries regarding the trust properties, liabilities, receipts, disbursements and the trustee’s compensation. Upon request of a remainder beneficiary,
Probate Courts Go Digital
On June 12, 2019, the Probate Court
Administrator’s Office announced that the Probate Courts will start mandatory e-filing in the coming months. Attorneys will no longer file paper copies of petitions and motions in the court. Like Connecticut Superior Courts, attorneys will electronically file petitions and motions, serve them on parties and counsel, receive decrees and notices from the court, view case documents, and pay court fees. The Probate Courts will use TurboCourt, a software system utilized in 19 other states. The new system is currently in the testing phase in several Probate Court districts. We understand that the statewide launch will not occur until 2020. Self-represented parties will not have to e-file, but many will want to do so given its benefits.
The Probate Court Administrator’s Office plans several webinar and live training sessions. Attorneys will have to master the new Probate Court Rules of Procedure that e-filing will affect. We are excited about the new e-filing system and the many benefits it will provide.
September, 2019, Issue #25
the Trust must also provide the report to the remainder beneficiary. A beneficiary may waive the right to trustee reports or other required information. CUTC also allows the settlor to designate a representative of a beneficiary to receive notice of the existence of a trust, the identity of the trustee, or the right to request a trustee’s report.
The new law may expand the use of inter vivos trusts. As long as the trust has not become irrevocable, beneficiaries and Trustees of trusts created while the settlor is living can now enter into nonjudicial settlement agreements to avoid seeking probate court approval to (i) bless an accounting, (ii) grant a trustee a necessary or desirable power, (iii) replace or appoint a trustee, (iv) determine a trustee’s compensation, (v) transfer a trust’s place of administration or (vi) waive trustee liability for certain actions. Probate courts will retain jurisdiction of all testamentary trusts (i.e., trusts created under a Will and trusts created by the probate court).
CUTC grants probate courts liberal powers to modify or terminate a trust. If the Court finds that the settlor, the trustee and all of the beneficiaries consent to the modification or termination of a noncharitable irrevocable trust, the court may approve the modification or termination, even if the change is inconsistent with a material purpose of the trust. Even if the settlor has died, if all of the beneficiaries consent to the termination or modification of the trust, the court can make the change if it is not inconsistent with the material purpose of the trust. Courts, however, cannot modify or terminate Special Needs Trusts for disabled beneficiaries as easily as other noncharitable irrevocable trusts. Courts can only modify Special Needs Trusts to ensure compliance with state or federal law or to change a remainder beneficiary after repayment of all state claims. Courts, without the consent of all beneficiaries, may modify the administrative or dispositive terms of a trust if it will further the purposes of the trust. Modifying a trust to conform to changing tax laws would clearly further the purposes of a trust.
For the first time, CUTC sets forth a procedure for making distributions upon termination of a trust. Beneficiaries must have 30 days to object to the proposed final distribution. The Trustee may keep a reasonable reserve for the payment of debts, expenses and taxes. The Trustee may request a release from
liability from the beneficiary, but it will be invalid to the extent that the release was induced by improper conduct of the Trustee, or the beneficiary, at the time of the release, did not know of the beneficiary’s rights or of the material facts relating to the breach.
The terms of a trust will usually prevail over a statute. Yet, CUTC sets forth those provisions of CUTC that cannot be altered by trust language. Those unalterable provisions include (i) the duty of a trustee to act in good faith and in accordance with the terms of the trust, (ii) the power of the court to modify or terminate a trust, adjust the compensation of the Trustee, or require or modify a
ESTATE PLANNING ADVISOR
surety bond, (iii) the duty of the Trustee to notify each beneficiary who has attained the age of 25 or his representative of the existence of the trust, the identity of the trustee and the right to request a trustee’s report, (iv) the exculpation or personal liability of the Trustee, (v) the jurisdiction of the court, or (vi) the court supervision of testamentary trusts. When drafting trusts in 2020, we will include trust terms that cannot overrule CUTC provisions, but we will include trust terms that may contravene CUTC but streamline trust administration.
Consider updating your current trust if it has been a while since you reviewed it. The new law may alter the effect of certain trust provisions. New statutes can cloud the meaning of favorable trust provisions and clarify the meaning of unfavorable trust provisions. You may want to explore modifying an irrevocable trust using the court’s expanded trust modification powers.
If you have never had a trust, you have picked the right time to consider signing one. You can tap the most current trust provisions to keep assets within your family, provide for charity, protect your assets from creditors and qualify for public benefits. Given that the notice provisions do not apply to trusts signed before 2020, you may want to create your new trust before the end of this year.
Finally, if you currently serve as a Trustee, you need to know the consequences of the new law. Trustees do not want to expose themselves to greater liability by failure to follow the unalterable provisions of CUTC.
The estate planning attorneys at Cipparone & Zaccaro, P.C. can help you understand how this new law affects you.
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Joe Cipparone wrote the articles in this edition. No taxpayer can avoid tax penalties based on the advice given in this newsletter. This information is for general purposes only and does not constitute legal advice. For specific questions related to your situation, you should consult a qualified estate planning attorney.
