What's New in Caselaw under the Uniform Trust Code: 2008-2010

by Stuart Ober, CFE, AIFA ®

The American Law Institute/American Bar Association's "Representing Estate and Trust Beneficiaries and Fiduciaries" seminar, was held on July 15-16, 2010 in Boston. The following is from "Caselaw under the Uniform Trust Code: 2008-2010," presented by David M. English, with additional contributions by Scott W. Boulton, Katerine R. Jones, and Sara L. Kelly. For more information contact ALI-ABA at (215) 243-1630 or at http://www.ali-aba.org.

he Uniform Trust Code ("UTC") which was approved by the Uniform Law Commissioners in 2000, was the first effort by the Commissioners to provide the states with a comprehensive model for codifying their law on trusts.

The UTC has been enacted to date in twenty-three jurisdictions, and, accordingly, a significant number of cases interpreting the UTC are appearing. The following are selected summaries of these cases between 2008 and 2010:

SCOPE (Section 102)
Dodge v. Trustees of Randolph Macon Woman's College, 661 S.E.2d 805 (Va. 2008)
In this case, the Virginia Supreme Court concluded that the Virginia UTC does not apply to a college organized as a non-stock charitable corporation. Section 102 of the UTC provides that the Code applies to express trusts, charitable and non-charitable, and to trusts created pursuant to a statute, judgment, or decree. The court concluded that the UTC was not intended to apply to charitable corporations.

Hardt v. Vitae Foundation, Inc., 2009 WL 3734190 (Mo. App. Nov. 10, 2009)
The court noted that a charitable trust is a trust created for charitable purposes and that a settler is a person who contributes property to such a trust. The donors in this instance were not settlors and did not create a trust. Therefore, the donors did not have standing to enforce the charitable agreement.

TRUST TERMINATION AND MODIFICATION (Sections 410 and 417)
Vaughn v. Huntington National Bank Trust Division, 2009 WL 342697 (Ohio Ct. App., Feb. 10, 2009)
The beneficiaries sought judicial termination of testamentary trusts that were established by their grandmother when they were twenty-one and nineteen years old. Each grandchild (and at their death, their descendents) was given $250 a month pursuant to the trust terms, with the trust to continue for the maximum period allowed by the Rule Against Perpetuities. Both beneficiaries were in their fifties at the time they filed the petition to terminate the trust. The court denied their petition for trust termination on the basis that the trust still had a material purpose, which was determined by the trial court to be that the trust was to continue in order to benefit the farthest generation possible.

Based on the facts that the trusts did not contain any language as to who should receive the trust corpus at termination, the court determined that the trust patently showed that the settler did not intend for any single individual to receive the trust corpus, but, instead, wished for the trust to continue. Thus, continuance of the trust was necessary in order to achieve this material purpose.

CREDITORS RIGHTS AND SPENDTHRIFT TRUSTS (Article 5)
In re Estate of Chrisp, 759 N.W.2d 87 (Neb. 2009)
A surviving second spouse elected against the decedent's will. The spouse argued that the assets of the decedent's revocable trust could be used to satisfy her elective share claim. The court held that an election against a will is not a statutory allowance to a surviving spouse, and, thus, the spouse could not satisfy her elective share claim from the trust.

In re Marcato, 2990 WL 1856578 (Bkrtcy, M.D. Ala., Jun. 29, 2009)
The mother established a Qualified Personal Residence Trust ("QPRT") and named her four children as continuing beneficiaries after the termination of her term interest. Following the mother's death, the trust was divided into separate shares for each child. Subsequent to this division, a child filed a petition in bankruptcy as a co-debtor with her husband. The trustee in bankruptcy then filed a motion to require the child to turn over her interest in the QPRT.

The court denied the motion. Interests in a spendthrift trust are excluded from a debtor's bankruptcy estate to the extent that they are protected from creditors under applicable state law. The Alabama UTC recognizes the validity of spendthrift provisions. The spendthrift clause in the QPRT met Alabama's requirement, so the child's interest in the QPRT was not subject to attachment by the trustee in bankruptcy.

Sowers v. Luginbill, 889 N.E.2d 172 (Ohio App. 2008)
The successor trustee of a deceased settlor's revocable trust brought a declaratory judgment action seeking to establish that the motorist, who sued the settlor before the settlor's death for injuries sustained in an automobile accident, was not entitled to reach trust assets to satisfy her claim. Summary judgment for the motorist was granted, and was sustained upon appeal.

The Ohio UTC provides that property of a revocable trust is subject to the claims of creditors while the settler is alive. The court held that the effective date of the transfer of assets to the trust for creditor purposes was the date of death, and not the date the assets were subsequently transferred to the revocable trust. Moreover, the motorist's claim accrued on the date of the accident, and not on the date the judgment was obtained.

REVOCABLE TRUSTS (Article 6)
Davis v. Young, 190 P.3d 23 (Utah App. 2008)
A decedent executed a revocable living trust, and later made several amendments. The third set of amendments was sent to the decedent in the form of replacement pages. The decedent added them, without signing them, to her estate planning documents, which she kept in a red binder. Following the decedent's death by suicide, a detective took the red book, which the decedent had left conspicuously on her kitchen table, and inventoried its contents at the police station. In doing so, the detective removed some of the pages for copying but was unable to state unequivocally that the third amendment was there at the time he discovered the binder.

The trial court determined that the unsigned third amendment was valid because the trust required only that the amendments be delivered to the trustee. The court reasoned that the decedent delivered the amendments to herself when she placed them in the red binder with the rest of her estate planning documents and left them in such a conspicuous manner. However, a charity whose share had been diminished by the amendment appealed.

The court applied Pennsylvania's version of UTC Section 602, which provides that the settler may revoke or amend a revocable trust by substantially complying with the method specified in the trust instrument. Concluding that the language of the trust agreement was unambiguous, the court concluded that it would not add a requirement that the trust amendment must have been signed. The court, therefore, concluded that the unsigned trust amendment was valid.

JP Morgan Chase Bank, NA v. Longmeyer, 275 SW 3d 697 (Ky. 2009)
A decedent named the bank as trustee of her revocable trust. When the decedent was bedridden and 93 years old, her caregiver arranged for attorney Longmeyer to change the decedent's estate plan. The new plan appointed Longmeyer as trustee and removed several charities as beneficiaries of the trust. After the decedent's death, the charities challenged the new estate plan alleging undue influence. Their claims were settled for $1,875,000. Longmeyer then used the bank to recover the settlement payout, alleging that the bank had breached its fiduciary duties in disclosing to the charities the circumstances surrounding the creation of the new estate plan. Longmeyer argued that had the disclosure not occurred, the charities would not have filed suit and the settlement payment would not have been necessary.

The trial court granted summary judgment in favor of the bank, deciding that it had a fiduciary duty as trustee of the original revocable trust to inform the adversely affected beneficiaries of its suspicions concerning the estate plan revisions. The Kentucky Supreme Court affirmed, broadly holding that the bank had an affirmative duty to inform the charities of their removal. The court reasoned that the Kentucky statute requiring a trustee to "keep the beneficiaries of the trust reasonably informed of the trust and its administration" did not provide any limitations on that duty or any exception for revocable trusts.

DUTY TO INFORM (Section 105, 813)
Wilson v. Wilson, 690 S.E.2d 710 (N.C. Ct. App. 2010)
This is the most important case of those cited. Irrevocable trust beneficiaries brought suit against the trustee for breach of fiduciary duty. The beneficiaries requested that the trustee provide an accounting of the trusts, alleging that the trustee had allowed the settler to take control of the trusts and invest the assets in his personal speculative business ventures. The beneficiaries also alleged that the trustee breached his fiduciary duty by failing to distribute income to the beneficiaries.

The trustee, in response to the request for an accounting, claimed that pursuant to the provisions of a trust, information in the nature of inventories, appraisals, reports, or accounts was not required to be provided to any court or any beneficiary. The trustee then filed a motion for a protective order. The trial court granted the trustee's motion, citing § 36C-1-105 of the North Carolina UTC (no aspect of a trustee's duty to inform beneficiaries is mandatory). The plaintiff appealed, claiming the trial court misinterpreted the North Carolina UTC.

The court of appeals overruled the trial court, concluding that the information sought by the trustees was reasonably necessary to enforce their rights under the trust, and, therefore, could not be withheld. The court reasoned that although the North Carolina UTC does not include portions of the UTC that requires the trustee to keep beneficiaries reasonably informed about the trust administration, the North Carolina UTC does provide that the trustee has the duty to act in good faith.

Under the Restatement (Second) of Trusts, Section 173, "the beneficiary is entitled to such information as is reasonably necessary to enable him to enforce his rights under the trust or to prevent or redress a breach of the trust." The court noted that "[a]ny other conclusion renders the trust unenforceable by those it was meant to benefit." Finally, the court explained that even if the settlor provides in the trust that an accounting is not required to be provided to any court or beneficiary, the trustee will be required in a suit for an accounting to show that he faithfully performed his duty.

____________________________________________________________________________________
Stuart A. Ober, CFE, AIFA® serves as a consultant/expert witness in the areas of fiduciary standard of care, due diligence, partnerships, suitability, and selling away (845-679-2300 or ober@stuartober.com).