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Abstract:
The Uniform Trust Code (UTC), which was promulgated in 2000, is the first national codification of the law of trusts. It has been adopted, with modifications, in 19 jurisdictions and is under consideration for adoption in many others. The Ohio Trust Code (OTC), which includes many significant modifications from the UTC, was enacted in June 2006, with an effective date of January 1, 2007.

The OTC is the product of extensive study of the UTC by a joint committee of members of the Estate Planning, Trust, and Probate Law Section of the Ohio State Bar Association and members of the Legal, Legislative, and Regulatory Committee of the Ohio Bankers League. Members of the Ohio Probate Judges Association also participated in the process. Input also was received by the Family Law Section of the Ohio State Bar Association, the Ohio Attorney General's office, and many lawyers and bankers across the state. It is a comprehensive codification of trust law in Ohio.

This Article examines the OTC, changes it has made to existing Ohio law, changes made to it from the UTC, policy considerations with respect to its enactment, and various issues it raises, and makes recommendations for changes to it by amendment. Considerable attention is directed to its creditors' rights provisions. The UTC's provisions on that subject have been among its most controversial (and played a significant role in its defeat in Colorado and Oklahoma, and in its repeal in Arizona). The OTC's creditors' rights provisions depart significantly from the UTC's and include innovations (for example, a statutory "wholly discretionary trust" and provisions designed to address issues peculiar to special needs trusts for incapacitated persons who are receiving, or anticipate receiving, public assistance) that have received considerable attention. Among the other provisions of the OTC that depart in significant ways from the UTC that the Article addresses are those on the trustee's duty to keep beneficiaries informed about the trust and the settlor's right to modify that duty; the ability of persons interested in a trust to enter into "private settlement agreements;" and the modification and termination of trusts.

trusts, uniform trust code

Abstract:
The question of the extent to which the owner of property may transfer it gratuitously, but subject it to enforceable restrictions on alienability and use, has a long history. During much of that history, the law protected donees from such efforts by donors. This traditional hostility to restraints imposed on property by donors protected the living from control by the dead, as well as the alienability of property. Opposing those interests, however, is the interest in respecting the freedom of the owner of property to dispose of it subject to whatever restrictions he or she chooses to impose.

Three fundamental questions these competing policies have raised are (i) the Rule Against Perpetuities issue of whether a trust settlor can create contingent interests that will last into the distant future, (ii) the Claflin doctrine issue of whether the beneficiaries of a trust can terminate it before the date specified for its termination by the settlor, and (iii) the spendthrift trust issue of whether the settlor can prevent the beneficiary from alienating - voluntarily or involuntarily - his or her interest in the trust. For more than a century, these issues have been important ones in the development of trust law with respect to the extent to which a settlor will be allowed to control property he or she has transferred in trust for others. The question of the extent to which a settlor's intent with respect to such property will be respected is not, however, limited to those three issues, but also arises in a variety of other circumstances.

The Uniform Trust Code (the "UTC"), promulgated in 2000, is the first comprehensive national codification of the law of trusts. As such, it provides an excellent opportunity to examine current thinking on how the balance should be struck between the property rights of donors who wish to control the future enjoyment of their property by others, and the interests of donees when those interests conflict, or are perceived by the donees to conflict, with restrictions or limitations imposed by the donor. The purpose of this Article is to engage in that examination.

A unique feature of the UTC is that while it generally provides default rules that apply only if and to the extent that the settlor does not provide otherwise in the instrument, the settlor's ability to override the UTC's rules is expressly limited by mandatory rules on fundamental subjects that apply regardless of the settlor's intent to the contrary. Although the UTC's mandatory rules will serve as an important focus of this Article, the issue of the extent to which the settlor's intent will be respected under the UTC arises in a variety of other contexts that also will be analyzed.

The tension between the property rights of settlors and the interests of beneficiaries arises with respect to many trust issues addressed by the UTC, including (i) the modification and termination of trusts, (ii) the alienability of the beneficiary's interest, (iii) the rights of beneficiaries to receive information with respect to the trust, (iv) the ability of the beneficiaries to change the trustee, (v) the ability of the settlor to impose value limiting restrictions on the management and investment of trust assets, and (vi) the ability of the settlor to relieve the trustee from the duty to act in good faith and to exculpate the trustee from liability for breaching a fiduciary duty. UTC provisions with respect to the settlor's ability to control property transferred in trust also involve the settlor's ability to fix the trustee's compensation or to waive or require a trustee's bond, the requirements for creating a valid trust, including that its purposes not violate public policy, the ability of the beneficiaries and the trustee to act collectively in ways that circumvent the settlor's intent, and the court's overriding ability to act as necessary in the interests of justice.

The Article will demonstrate that the Uniform Trust Code has taken modest steps towards accommodating the interests of trust beneficiaries when those interests will not be served by strict adherence to the settlor's intent as set forth in the terms of the trust. In other respects, consistent with the common law, the UTC continues to honor the settlor's intent. Finally, in some respects the UTC provides greater protection to the settlor's intent than under common law.

Uniform Trust Code, intention of settlor, dead hand control

Abstract:
The question of the extent to which the owner of property may transfer it gratuitously, subject to enforceable restrictions on alienability and use, has a long history. To protect the living from control by the dead, as well as the alienability of property, the law traditionally has refused to enforce some such restrictions. Opposing those interests, however, is the interest in respecting the freedom of the owner of property to dispose of it subject to whatever restrictions he or she chooses to impose.

The Uniform Trust Code ("UTC"), promulgated in 2000, is the first comprehensive national codification of the law of trusts. As such, it provides an excellent opportunity to examine current thinking on how the balance should be struck between the property rights of trust settlors who wish to control the future enjoyment of their property by others, and the interests of trust beneficiaries whose enjoyment of the property is limited by settlor imposed restrictions. The purpose of this Article is to engage in that examination.

Generally, the UTC provides default rules that apply only if and to the extent that the settlor does not provide otherwise in the instrument. The settlor's ability to override the UTC's rules, however, is expressly limited by mandatory rules, on fundamental subjects, that apply regardless of the settlor's express intent to the contrary. Although the UTC's mandatory rules will serve as an important focus of this Article, the issue of the extent to which the settlor's intent will be respected under the UTC arises in a variety of other contexts that also will be analyzed.

The tension between the property rights of settlors and the interests of beneficiaries exists with respect to many subjects addressed by the UTC, including (i) the modification and termination of trusts, (ii) the alienability of the beneficiary's interest, (iii) the rights of beneficiaries to receive information about the trust, (iv) the ability of the beneficiaries to change the trustee, (v) the ability of the settlor to impose value limiting restrictions on the management and investment of trust assets, and (vi) the ability of the settlor to relieve the trustee from the duty to act in good faith and to exculpate the trustee from liability for breaching a fiduciary duty. UTC provisions with respect to the settlor's ability to control property transferred in trust also involve the settlor's ability to fix the trustee's compensation or to waive or require a trustee's bond; the requirements for creating a valid trust, including that its purposes not violate public policy; the ability of the beneficiaries and the trustee to act collectively in ways that circumvent the settlor's intent; and the court's overriding ability to act as necessary in the interests of justice.

The Article will demonstrate that the UTC has taken modest steps towards accommodating the interests of beneficiaries when those interests will not be served by strict adherence to the settlor's intent as set forth in the terms of the trust. In other respects, consistent with the common law, the UTC continues to honor the settlor's intent. Finally, in some respects the UTC provides greater protection to the settlor's intent than under common law.

property, trust, settlor, intent

Abstract:
Over the centuries that wills have been used to dispose of testators' property at death, the law of wills has developed to address issues that arose. Similarly, over the centuries that trusts have been used for non-testamentary purposes, the law of trusts has developed to resolve resulting issues.

In recent decades revocable trusts have become the most commonly used trust in the United States. To avoid estate administration, particularly in states in which administration involves cumbersome, time-consuming, and expensive court supervision, settlors make inter vivos transfers of assets that otherwise would be subject to administration on their deaths in trust. Typically, the trust instrument provides that the settlor may revoke the trust at any time, in which case its assets are to be returned to the settlor, and designates beneficiaries to whom the trust assets are to be distributed, or held for the benefit of in one or more now irrevocable trusts, following the settlor's death.

In short, revocable trusts have become increasingly popular as substitutes for wills. Not surprisingly, issues that traditionally have arisen in connection with the use of wills frequently also are arising when revocable trusts are used as will substitutes. Because revocable trusts are, to a significant extent, the functional equivalent of wills, the trend in both statutory and case law is to subject such trusts, and persons interested in them, to the same law that would apply if the settlor had instead used a will to provide for the disposition of her property at her death. In examining that trend, this article demonstrates that, while there are many revocable trust issues that are being, and should be, resolved by reference to the law of wills, there are many others for which that is not the case.

Revocable trusts, wills

Abstract:
Among the provisions of the Uniform Trust Code that have attracted the most attention are those of Article 5: Creditor's Claims; Spendthrift and Discretionary Trusts. Although much of the UTC is a codification of the common law of trusts, there are many differences among the states in their handling of various creditors' rights issues, and many jurisdictions have no law on some of those issues. As a result, there is no well-accepted, established common law on some of the issues addressed by Article 5. Further, while the UTC's approach to many creditors' rights issues is consistent with the common law in many states, in other respects the UTC's approach is innovative and differs from existing law in many states. In some ways, Article 5 enhances the asset protection planning traditionally afforded by trusts, while at least in the context of the right of a child, spouse, or former spouse of a beneficiary of a discretionary trust to compel distributions he or she can reach, in many states the UTC would enhance creditors' rights.

This Article addresses spendthrift and discretionary trust issues under the UTC in a question and answer format that is intended to respond to concerns, issues, and claims that have been raised or made with respect to the UTC's creditors' rights provisions. As it demonstrates, much of the criticism the UTC has received over this subject is unwarranted. Some of the criticism, however, has been instrumental in recent revisions to creditors' rights provisions of the Code and its comments. While those revisions may not have satisfied all of the concerns of some of the UTC's critics, they clarify that the Code will not have the adverse effects on the protections trusts have traditionally provided that its critics predict.

Wills, trusts, and estates, Uniform Trust Code, creditors' rights, discretionary trusts, spendthrift trusts

Abstract:
The new Uniform Trust Code (the “UTC”), which recently has been introduced in the District of Columbia and six states but has not yet been enacted in any jurisdiction, is described in its prefatory note as “the first comprehensive national codification of the law of trusts.” According to its Reporter:

Crafting the provisions of Article 5 on spendthrift protection and the rights of a beneficiary's creditors to reach the trust proved to be the most difficult task in drafting the Act. The area is controversial and conflicting policy directions yield different results. The result was a compromise, responding at least in part to the concerns of the different factions.

The ability of a creditor to reach a debtor's interest in a trust may be affected by one or more of the following factors: (i) whether the instrument includes a spendthrift provision, (ii) whether the beneficiary's interests in the income and principal of the trust are mandatory or discretionary, (iii) whether the beneficiary is a settlor or trustee of the trust, (iv) the identity of the creditor and the nature of the creditor's claim, (v) the needs and circumstances of the beneficiary, the beneficiary's dependents, and the creditor, and (vi) the size of the trust. At issue are the claims of such creditors as providers of public assistance to the needy, other providers of necessities, alimony and child support claimants, and tort claimants, as well as the claims of “ordinary” personal or commercial creditors. Closely related to the question of whether a public support provider may reach a trust beneficiary's interest to reimburse it for the costs of care supplied to the beneficiary, is whether the interest of a beneficiary in a trust will disqualify the beneficiary from receiving public assistance.

This Article examines the protections the UTC affords beneficiaries of trusts from the claims of their creditors, the limitations on those protections, and the policies supporting the protections and their limitations. Emphasis is given to the treatment of the claims of child support and alimony claimants; the claims of public assistance providers; the claims of persons injured by a trust beneficiary's tortious conduct; and the UTC's rejection of the recent “trend” allowing settlors who are beneficiaries of the trusts they create to protect the trust assets from the claims of their creditors.

Two recommendations are made for states considering adoption of the UTC. First, a significant concession to creditors' rights made by the UTC is to allow child support and alimony claimants to compel distributions from a discretionary trust that they can reach. To do so, however, such a creditor must be able to show that in not making the distribution, the trustee has abused its discretion or failed to comply with a standard of distribution. This Article argues that no such showing should be required. Rather, subject to the court's ability to consider the needs of the beneficiary as well as the needs of the child support and alimony claimants in determining what would be an equitable award under the circumstances, such a creditor should be able to compel a distribution of the maximum amount the trustee could distribute to the debtor/beneficiary in the proper exercise of its discretion.

Second, spendthrift provisions generally prohibit creditors of trust beneficiaries from reaching their interests without regard to the size of the trust or the needs and circumstances of the beneficiary and the creditor. Under the UTC, the only creditors whose claims are not barred by such a provision are child support and alimony claimants, the state or federal government, and creditors who provided services for the protection of the beneficiary's interest in the trust. Absent from the list are tort claimants. Unlike the Restatement of Trusts, the UTC allows a spendthrift provision to bar the claims of tort claimants without regard to the nature of the tortfeasor/beneficiary's conduct. In the context of two recent cases raising this issue, this Article argues that at least when the beneficiary's conduct is grossly negligent, reckless, or intentional, a spendthrift provision should not protect the beneficiary's interest from tort claimants.

Trusts, Uniform Trust Code

Abstract:
With respect to marital property rights, the contemporary view of marriage is that it is an economic partnership. Spouses are viewed as equal partners with respect to property acquired during the marriage from either of their efforts, but as having no claim to property the other spouse brought to the marriage, or received by gift or inheritance during the marriage. The widespread acceptance of this theory, which has long been an underlying principle of the community-property system, is evidenced by the adoption over the last 30 years of equitable distribution as the means for the division of the property of divorcing spouses in all noncommunity-property jurisdictions. Generally, under equitable distribution property of spouses is divided in divorce proceedings in an equitable manner without regard to legal title. In most jurisdictions, only marital property of spouses is subject to such division, and in most of the jurisdictions in which separate property also may be divided, the clear preference is not to do so.

In 1990, the spousal elective-share provisions of the Uniform Probate Code were revised to bring elective-share law into line with the partnership theory of marriage. The new UPC system, however, does not determine the surviving spouse's elective-share claim by direct reference to the marital property the spouses accumulated during the marriage. Rather, it uses a mechanically applied "approximation system" to estimate the amount of the spouses' property that is marital, and the amount that is separate, based solely on the length of their marriage. When a spouse brings property to the marriage, as often is the case in second and subsequent marriages, or receives property during the marriage by gift or inheritance, the approximation system often will allow a surviving spouse's elective-share claim to reach that separate property. The result will be elective-share claims that are inequitable and inconsistent with the partnership theory of marriage.

The purposes of this article are (i) to examine how well the approximation system will accomplish its intended objective of incorporating the marital partnership theory into elective-share law, and (ii) to propose a deferred-community-property system as an alternative means of doing so. Under such a system, the surviving spouse's elective share would be half of the couple's actual marital property, rather than half of an estimate of their marital property that is determined solely by the length of their marriage. A deferred-community-property elective-share system would produce results that are more consistent with the partnership theory of marriage and with the manner in which the property of spouses is divided when their marriage ends in divorce.

wills, estates, elective share, rights of surviving spouse