Beginning July 15, 2014, the Uniform Trust Code (the “UTC”) became effective in the Commonwealth of Kentucky. In becoming the 28th state to adopt the UTC, Kentucky updated its trust laws with a code designed to provide a comprehensive set of rules for trust governance. The UTC applies both to newly enacted trusts and to trusts which were in existence prior to the effective date. Because of this, anyone who deals with trusts needs to be cognizant of the changes to Kentucky trust law. While commentary on the UTC could fill volumes, we have highlighted seven of the most important changes to Kentucky law for you:
- Avoiding the Expense of Court: Interested parties may enter into a binding nonjudicial settlement agreement with respect to certain trust matters. In addition, a noncharitable, irrevocable trust may now be modified or terminated without court approval upon consent of the grantor and all beneficiaries, even if such modification or termination is contrary to a material purpose of the trust.
- Terminating an Uneconomic Trust: When a trust contains assets with a total value of less than $100,000, the trustee may terminate the trust if the trustee determines that the value of the trust property is insufficient to justify the cost of administering the trust. The trustee must send notice to qualified beneficiaries before terminating the trust.
- Pet Lovers: Do you remember the estate of Leona Helmsley that left millions of dollars to her dog? A Kentucky trust may now be created to provide for the care of an animal. The trust will terminate upon the death of the last surviving animal named in the trust.
- Representation: Parents (along with a list of other representatives) who have no conflict of interest may now bind their minor children in trust matters.
- Limitations on Claims Against Trustees: Do your trust beneficiaries disagree with the terms of the trust or the way it is administered? The UTC provides that a beneficiary may not bring a breach of trust claim more than one year after receipt of a report that adequately discloses the claim and notifies the beneficiary of the time to institute a proceeding.
- Individual Trustees: You are now required to act as a “prudent investor” in the same manner as a corporate trustee. Given this fact, it may be time to consider diversifying the trust’s portfolio.
- Similarities to Wills/Claims of Creditors: A grantor is now required to have the same mental capacity to create a revocable trust as a will. Further, creditors may now make claims against revocable trust assets upon the death of a grantor.
These are just a few of the important changes to Kentucky trust law.