The NEW New Jersey Uniform Trust Code arrives July 17th

New Jersey has adopted a new Uniform Trust Code which you’ll find at N.J.S.A. 3B:31-1 et seq. (Public law 2015, chapter 276). It was signed into law on January 19, 2016 and will take effect on July 17, 2016. The law has wide-reaching implications. It applies to existing trusts as well as trusts that come into existence after the effective date. If you are the trustee of a trust, or a beneficiary of a trust, or are in the process of creating a trust, it’s a good idea to review the trust with an attorney to see what may be affected by the new law.

Here are a few features of the new Code.

The law establishes time limits in which a beneficiary can contest the way the trust is administered. See N.J.S.A. 3B:31-74. Some trustees send out an annual report or accounting to the beneficiaries, and others do not. Some trusts require this, others do not. A beneficiary is generally entitled to demand a view of the records of the trust to see if his/her interests are being protected: The new statute mandates that a trustee “keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests.” See N.J.S.A. 3B:31-67.a.  These are the current permissible or mandatory distributees, successor permissible distributees, or presumptive remainder beneficiaries.

It is still up to the Trustee whether and when to send out an accounting of the trusts’s activity. However, the benefit to the trustee of sending out a report or accounting is that under the new law, once the trustee sends out a report that (a) adequately discloses the existence of a claim for breach of trust and (b) informs the beneficiary of the time allowed for commencing a legal proceeding, the beneficiary has just six (6) months in which to file suit. If the trustee sends no report, the beneficiary has up to five (5) years to sue after the earlier of  (a) removal, resignation or death of the trustee, (b) termination of the beneficiary’s interest, or (c) termination of the trust. If the beneficiary is a minor, this time limit starts to run upon reaching the age of majority. See N.J.S.A. 3B:31-74. 

The law allows one co-trustee to delegate powers to a co-trustee  even if the trust language didn’t expressly allow it, provided that it doesn’t appear that the settlor reasonably expected the trustees to act jointly on all functions. This could provide for greater flexibility in the trust administration, particularly in case of an emergency. See N.J.S.A. 3B:31-60. 

One other area that could be of great use is that a trust can be amended by the trustee with the consent of all interested persons, without the need to go to court to get judicial approval. See N.J.S.A. 3B:31-27. Even an irrevocable trust could be amended. The modifications must be consistent with the material purpose of the trust. This may mean that if you are dealing with an old trust such as a First Party Special Needs Trust that doesn’t meet all the current regulatory requirements, the trustee and beneficiary could agree to the modification without judicial intervention. If the beneficiary receives benefits from Medicaid, the State’s consent may be required as well … but that’s a discussion for another day.

Call us to review and discuss trusts, estate planning and special needs … 732-382-6070

Trust Reformation? What’s that?

Trusts are prepared with an eye toward longevity. A trust is designed to protect assets for benefit of a  beneficiary, both now and for the future. The Trust will specify who will manage it now (the Trustee) and will typically contain a list of successor trustees who can step in later if necessary, and a mechanism for someone to appoint a successor Trustee if there ever is an unfilled vacancy. The Trust is for the living and the not-yet-born. The Trust will specify who receives the funds if a beneficiary dies. The trust will specify the terms and limitations on distributions. A Trust may last for one lifetime or may morph into another form after the death of the primary beneficiary.

Sometimes, the trust is not written in a way that correctly addresses the concerns of the person who established the trust. This could be due to an error or misunderstanding on the part of the “scrivener” (the person who actually “wrote” or prepared the trust). Sometimes, laws that control the effect of such trusts may change, and the original creator (grantor) may not even know it. And sometimes, the original purpose of the Trust is being frustrated due to a change in circumstances after many years. The Trustee of the Trust may discover that certain language in the original trust has now created ambiguities, or is making the beneficiary ineligible for governmental benefits when they should have been eligible.A Trust that was erroneously written as a general discretionary trust may need to be amended to be a special needs trust. What can be done if it’s an irrevocable trust? Generally, a court petition will be needed, and this is called “trust reformation.”

There are two primary legal theories on which a court in New Jersey can “reform” or amend an irrevocable trust. One theory is “scriviner error” — the scriviner knew what needed to be done, and what the grantor wanted, but made an error in the way s/he wrote the trust. The other theory is that it is necessary to reform the Trust to conform to the grantor’s intent — circumstances or laws have created a vacuum within the trust, there’s a lack of clarity as to whether a certain person is intended to be a beneficiary, or law has changed and more specific language is now required in order to adequately protect the Beneficiay the way the grantor wanted.

The party who petitions the court must prove by “clear and convincing evidence” that the amendments should be done and are consistent with the grantor’s actual intentions. The original scriviner of the trust may have to be subpoenaed to testify. Everyone who has a stake in the trust will have to be given Notice of the proceeding. While the court will rely heavily on the express terms of the document, extrinsic evidence can be presented in these cases. Substantial proof will be required, and often that proof must relate back to the time the Trust was created.

When legal problems occur, the law provides a remedy. Don’t despair – just call a lawyer.

For representation on estate and trust planning, special needs and elder care, call … 732-382-6070