By Mark G. Kmiecik & Charles G. Maris
On July 1, 2014, Wisconsin’s New Trust Code (“WTC”) takes effect making Wisconsin the 29th jurisdiction to adopt a version of the Uniform Trust Code (“UTC”). The UTC grew out of the realization that modern era trust business is now globalized like the economy, and that a uniformity of trust laws is necessary to provide administrative and statutory consistency among the states. The continuing movement of states, like Wisconsin, to adopt a version of the UTC reflects this national character of the trust business and the importance of keeping up with current developments or risk falling behind in the competition for national trust business. As July 1, 2014 is quickly approaching, if you are an attorney, CPA, or a financial professional who provides estate planning, you should be aware of the many new aspects of the WTC, including the following ten important aspects impacting estate plans.
- Retroactively Applied. While the WTC applies to all trusts created before July 1, 2014, the following specific provisions do not apply: the revocability and amendment of revocable trusts; the trustee’s duty to inform and report; and the nonapplication of the prudent investor rule to life insurance policies. Regardless, if there is a trust provision that is unfair or prejudicial to administration of the trust, the WTC provides the court with the right to disallow the application of it in a judicial proceeding.
- Default and Mandatory Rules. Planners can draft language where the terms of the trust will prevail in almost all circumstances, except for those the WTC specifically mandates, including, but not limited to, the requirements to create a trust, the effects of spendthrift provisions, the duty of the trustee to act in faith, and the power of the court to modify or terminate the trust.
- Trust Protector. A trustee can add flexibility to a trust and create a safeguard against trustee abuse by nominating a Trust Protector. Besides acting as the trust’s “watchdog”, a Trust Protector offers greater assurance that modifications or amendments can be made to the trust instrument so that the original intentions of the grantor will be carried out—no matter what events transpire in the future.
- Directed Trust. A directed trust allows you to divide the investment or distribution functions of a fiduciary between a directing party and the trustee. A directed trust requires two fiduciary parties. There must be a party with the power to direct (the “directing party”) and a designated trustee who is obligated to follow the direction of the directing party.
- Pet Trust. For 2014, it is estimated that we will spend over $58 billion dollars on our pets. The staggering growth in the industry is a reminder that pets are viewed as an integral part of the family. A trust for the care of a pet reflects that prevailing sentiment by allowing you to provide for the care of your four-legged family member for his or her life.
- Privacy. A trust’s privacy is enhanced by allowing the trustee to furnish to a third party a Certification of Trust instead of the full trust document, thus keeping important terms, like the dispositive provisions, from the reach of disinterested parties.
- Alternative Dispute Resolution. Disputes involving terms and conditions that a court could approve, can now be resolved by nonjudicial settlement agreements. So long as the agreement does not violate a material purpose of the trust, parties can resolve issues involving the terms of the trust, investment actions, the liability of the trustee for an action relation to the trust, and more.
- Decanting. To better accomplish the goals of the grantor and maximize the beneficiary’s interests, the trustee, under certain circumstance can decant the trust, revocable and irrevocable, into a new trust. New terms can include adding a trust protector, modifying a power of appointment, or changing the distribution ages.
- Virtual Representation. A virtual representative with a substantially identical interest with respect to a particular matter or dispute can now represent and bind someone who is not otherwise represented.
- Life Insurance. To protect one of the largest assets of the trust, the trust should include language that the trustee keep in force insurance for the protection of the trust estate, otherwise there is no risk of loss for the trustee in abandoning or allowing insurance policies to lapse.
We will continue to provide helpful insights on the new law and suggest planning opportunities available for trusts and estates clients. If you have any questions regarding these changes or the impact on your current estate plan, please contact your Davis & Kuelthau attorney or the authors, Mark G. Kmiecik at 414.225.1406 or mkmiecik@dkattorneys.com and Charlie G. Maris at 262.792.2424 or cmaris@dkattorneys.com.