On July 7, 2006, Gov. Rendell signed the Pennsylvania Uniform Trust Act into law. The UTA, which becomes effective in Pennsylvania on November 6, 2006, is closely modeled on the Uniform Trust Code, which has been enacted in similar versions in 18 states and the District of Columbia and is pending in many others.
In general, the UTA is designed to encourage and facilitate communication among trustees and beneficiaries. It specifically provides that “a trustee shall promptly respond to a beneficiary’s reasonable request for information related to the trust administration.” While we at Pepper believe that a trustee always has been obligated to respond to reasonable requests for information from a beneficiary, this obligation was never specifically stated – until now.
Most of the UTA is a restatement of current trust law in Pennsylvania; however, new notice requirements to beneficiaries and changes in trustee liability for the administration of a trust impact both trustees and beneficiaries.
The UTA requires trustees to give notice of the existence of an irrevocable trust to any beneficiary over 25 who currently may or might be entitled to receive income or principal. In Pennsylvania, unlike many jurisdictions, the administration of an estate or trust is subject to court supervision only when the executor, trustee or a beneficiary requests the court’s assistance. In this sense, Pennsylvania is a "beneficiary monitored" – rather than a "court monitored" – system, which benefits all those concerned by keeping down unnecessary costs, filings and time expenditures. To work properly, however, beneficiaries of an estate or trust need to know that they are beneficiaries.
The notice itself, while not complicated, must disclose the following:
- the fact of the trust’s existence
- the identity of the settlor (the person who created the trust)
- contact information for the trustee
- a statement of the beneficiary’s right to receive a copy of the trust and some form of annual report if desired.
This requirement is similar to the notice that must be given to all beneficiaries at the beginning of an estate administration.
Certain trusts are exempt from the notice requirement. No notice is required for any trust that is currently revocable, nor for any trust (revocable or irrevocable) where the settlor is still living and has not been declared incapacitated by a court. Once the settlor dies and the trust becomes irrevocable, notice must be provided within 30 days. Other events occurring during the administration of the trust – such as a change of trustee – will require further notice.
If you are a trustee of a trust, you may need to give this notice and should consult with trust counsel concerning whether the notice is required, to whom it must be given and when. The answers to these questions may vary but, in general, a trustee of an existing irrevocable trust has until November 6, 2008, to send the notice.
Release of Trustee from Liability
The UTA provides greater protection from liability for a trustee’s administration of a trust. Currently, absent a written release from all present and future beneficiaries, a trustee remains liable for his or her administration of the trust until that release is obtained or until an accounting is filed with the court. This liability may cover many years and may even extend beyond the death of a trustee. Under the UTA, a trustee may be relieved of liability for the administration of the trust by providing certain annual reports to beneficiaries and having specified periods of time expire without the beneficiaries objecting to the reports.
If you are a trustee of a trust, particularly if there is no corporate trustee, you should consult with trust counsel concerning the benefits, costs and need to provide some form of annual report to beneficiaries.
Other UTA Provisions of Note
Until the enactment of the UTA, there was no statutory guidance concerning an individual’s capacity to write a trust or the rights of creditors in revocable trust assets at the death of the settlor. The UTA provides that the mental capacity to write a trust is the same as that needed to write a Will. It also limits the ability of creditors to reach the assets of a revocable trust at the death of the settlor, tracking the ability of creditors to reach estate assets, including extending to trusts the protection of a specific statute of limitations for claims against trust assets.
Revocation of the Rule Against Perpetuities
The same bill that enacted the UTA repealed the Pennsylvania Rule Against Perpetuities for all interests created after December 31, 2006. This means that beginning January 1, 2007, anyone who wishes to create a long-term trust will not need to go to Delaware, New Jersey, South Dakota or any other jurisdiction that has previously repealed this rule. While it now will be possible to create such a trust in Pennsylvania, we encourage clients to continue to build in as much flexibility as possible when creating long-term trusts to allow for the reality of changing circumstances many years in the future.
Edward M. Watters