On July 8, 2012, Governor Patrick signed the Massachusetts Uniform Trust Code (the “MUTC”) into law, which became effective as of the date of signing. The MUTC modernizes the administration of trusts under Massachusetts law. As with the Massachusetts Uniform Probate Code, which became effective earlier this year and was the topic of a prior client update, the MUTC is based on a model statute drafted by a national board of experts in order to simplify the administration of trusts. Although some of the trust practices have remained the same, the new law seeks to streamline other practices and reduce judicial intervention when practical. The MUTC was drafted with the understanding that many trusts are administered properly and require little judicial oversight. Of course, judicial oversight is still available for those trusts that require intensive Court involvement. Below we have highlighted several of the important changes with respect to trust administration in Massachusetts.
Applicability. The MUTC applies to all trusts administered in Massachusetts, even those created before the enactment of the MUTC. However, there are a few technical provisions of the MUTC that do not apply to trusts that became “irrevocable” (i.e., permanent and unalterable) prior to the effective date.
Virtual Representation. One way that the MUTC simplifies trust administration is through a concept referred to as “virtual representation.” In most cases, virtual representation eliminates the need for the Court to appoint a guardian ad litem to represent the interests of minor and unborn beneficiaries. It also allows a beneficiary with an identical interest in the trust to represent the interests of those minor and unborn beneficiaries. This law acknowledges that, in many cases, the appointment of a guardian ad litem is unnecessary, since, all of the beneficiaries often agree with the proposed resolution of the matter at hand. In addition, the ability of a trustee or beneficiary to appear before the Court without a guardian ad litem reduces the cost of administering the trust and the amount of time necessary for approving or resolving outstanding issues.
Trustee Vacancy. The MUTC does away with the requirement that the Court be involved with the appointment of a successor trustee when there is no designated successor. The new law streamlines the process for appointing a successor trustee by allowing the beneficiaries with a current interest in the trust to appoint a successor trustee by unanimous agreement, without Court approval or involvement. In addition, it is no longer necessary to obtain Court approval for the removal of an incapacitated trustee. Under the MUTC, a trustee is deemed to have resigned if a guardian or conservator is appointed for the trustee.
Trustee Decision-Making. The new law reverses the presumption that trustees may only act by unanimous agreement. Instead, the MUTC allows trustees to act by majority vote. The law also protects the dissenting trustee by insulating the trustee from liability arising out of the actions of the majority. It should be noted that this law only applies to trusts established after the effective date of the MUTC (July 8, 2012). Trustees of trusts that became irrevocable prior to the effective date must still act by unanimous agreement, unless the terms of the trust provide otherwise.
Accounting to Beneficiaries. The MUTC requires a trustee to keep all beneficiaries with a current interest in the trust and certain beneficiaries with a future interest in the trust reasonably informed of the administration of the trust. For example, the trustee must respond to all reasonable requests for information related to the administration of the trust and provide an annual account, formal or informal, to all of the current beneficiaries and to certain future beneficiaries. This account must include specific information such as a list of the trust assets and their relative value, if possible, as well as liabilities, receipts, and disbursements, including the amount of compensation paid to the trustee.
Trust Protector. The MUTC authorizes the use of a so-called “trust protector.” A trust protector is an individual, non-trustee who has the authority to exercise certain powers over a trust, such as the power to appoint or remove a trustee or to direct the actions of a trustee. The law stipulates that the trust protector has a fiduciary duty to the beneficiaries of the trust, clarifying the relationship between the trust protector and the beneficiaries. The addition of a trust protector can be particularly useful in certain situations by creating additional flexibility for long-term irrevocable trusts.
Charitable Trust. Prior to the enactment of the MUTC, an individual who created a charitable trust (“grantor”) did not have the power to enforce the trust if the charitable beneficiary or trustee did not follow its terms. This right was reserved exclusively to the Attorney General. The MUTC gives the grantor the power to enforce the terms of a charitable trust and to ensure that the grantor’s charitable intentions are followed.
Period for Contesting the Validity of a Trust. The MUTC limits the amount of time during which an individual may contest the validity of a trust. Under the new law, a trust that was revocable at the time of a grantor’s death may be contested until the earlier of: (1) one year after the grantor’s death or (2) 60 days after the trustee sends a potential contestant a copy of the trust, the trustee’s contact information and notice of the amount of time allowed for challenging the trust. This provision was included with the hope of reducing the number of trust challenges and expediting the distribution of trust assets.
Non-Judicial Settlements. The new law allows beneficiaries to enter into a binding agreement without Court intervention or approval. However, the agreement may not violate a material term of the trust and must be an agreement that the Court could have approved if it appeared before the Court. This provision allows beneficiaries to reach an agreement regarding the administration or interpretation of the trust without appearing in Court.
Modification and Termination of a Trust. The MUTC allows a Court to modify or terminate a non-charitable trust even if the proposed modification or termination is inconsistent with a material purpose of the trust as long as the grantor and all of the beneficiaries agree to the proposed modification or termination. A non-charitable trust may also be modified or terminated if the grantor is no longer living as long as: (1) all of the beneficiaries agree to the proposed modification or termination, and (2) the proposed modification or termination does not violate a material purpose of the trust. Even if a beneficiary does not consent to the proposed modification or termination, in certain instances it may still be possible to achieve the proposed modification or termination. As long as the non-consenting beneficiary’s interest in the trust can be insulated from the proposed change, the Court may approve the proposed modification or termination with respect to that portion of the trust relating to the interests of the consenting beneficiaries.
The Court can also modify or terminate a trust if a situation arises that is not anticipated by the grantor, and the proposed modification or termination would further the purpose of the trust. This provision is particularly useful for long-term trusts that no longer reflect the intentions of the grantor as a result of a change in facts or circumstances.
Uneconomic Trusts. A trustee may, but is not required to, terminate a trust if the principal of the trust is less than $200,000 and if the trustee determines that the trust property is insufficient to justify the cost of administration. This is a significant increase from the $50,000 ceiling imposed under prior law and represents the realistic cost of trust administration.
Purpose Trusts. The MUTC now allows grantors to establish a non-charitable trust to expend funds on achieving a specific stated purpose, even if no identifiable beneficiary or class of beneficiaries is evident from the document. Under previous law, such a trust was only valid for a charitable purpose.
The MUTC makes many other technical changes that are not addressed in this update. It should be noted that the majority of the provisions of the MUTC are default provisions that apply only when a trust is silent on a certain issue. As such, many of the provisions of the MUTC may be changed provided that your trust has a provision overriding the default MUTC provision.