On April 7, 2014, Governor Beshear signed into law HB 78, which caused Kentucky to join twenty-seven other states and the District of Columbia in the adoption of the Uniform Trust Code (the "UTC"). Kentucky's adoption of the UTC makes the rules related to trust administration more similar to those in surrounding states (e.g., Ohio, Tennessee, West Virginia and Indiana, which have adopted various portions of the UTC in recent years), and it represents a substantial change to the trust law in Kentucky. In general, the UTC, among other things, (i) contains specific in-court and out-of-court procedures for terminating/modifying outdated or inflexible irrevocable trusts, (ii) more specifically defines the respective rights and duties of trustees and beneficiaries, (iii) provides statutory authority for the principles of virtual representation, and (iv) provides an extensive list of definitions applicable to the new Chapter 386B of the Kentucky Revised Statutes.
Following are a few of the specific changes to Kentucky trust law that will occur when Kentucky's version of the UTC becomes effective on July 15, 2014:
- The rules set forth in the UTC will apply to all types of express trusts – inter vivos, testamentary, written and oral – irrespective of when those trusts were created.
- The District Court and Circuit Court will have concurrent jurisdiction with respect to all trust matters, unless a statute provides one court with exclusive jurisdiction.
- The District Court will have specific statutory authority to adjust a trustee's compensation if (i) the duties of the trustee have changed significantly since the trust was created or (ii) the compensation specified in the terms of the trust would be unreasonably high or low.
- A parent will be granted specific statutory authority to bind his or her minor and unborn children with respect to any trust matter if there is no conflict of interest between the parent and his or her children with respect to such matter.
- Pet trusts created for the lifetime of a pet or the lifetimes of multiple pets will be specifically authorized.
- The settlor of a trust and all of the beneficiaries will be able to terminate a noncharitable, irrevocable trust without court approval, even if the termination is not consistent with the purpose of the trust.
- The District Court will be granted specific authority to terminate any trust if the continuance of the trust is not necessary to achieve any material purpose of the trust and either (i) all of the beneficiaries consent or (ii) the court is satisfied that the interest of a beneficiary who does not consent will be adequately protected.
- The Circuit Court will be granted statutory authority to apply cy pres to modify or terminate a charitable trust if the charitable purpose of the trust becomes unlawful, impracticable, impossible to achieve, or wasteful.
- Upon notice to the "qualified beneficiaries," the trustee of a trust that contains property having a total value less than $100,000 will be able to terminate the trust if the trustee determines the value of the trust property is insufficient to justify the cost of administration.
- The District Court will be granted exclusive jurisdiction to modify or terminate a trust or remove the trustee and appoint a new trustee, if the court determines the value of the trust property is insufficient to justify the cost of administration.
- Upon notice to the "qualified beneficiaries," the trustee will be able to separate or combine trusts if such action doesn't impair the rights of a beneficiary or adversely affect achievement of the purposes of the trust.
- Although the statutory exceptions to spendthrift protection with respect to a beneficiary's spouse, children and certain creditors will be retained, a creditor of a beneficiary will not be able to compel a distribution from the trust if the distribution is subject to the trustee's discretion and the trustee has complied with the standard of distribution and has not abused the discretion.
- A beneficiary will have to bring an action to contest the validity of a revocable trust within the earlier of (i) two years of the settlor's death or (ii) ninety days of receiving proper notice from the trustee.
- Upon the termination or partial termination of a trust, a beneficiary will lose the right to object to a proposed distribution if the beneficiary does not object within thirty days of receiving proper notice of the proposed distribution from the trustee.
- As a general rule, a beneficiary will not be able to bring a claim for breach of trust against a trustee (i) more than one year after receiving a report that adequately discloses the existence of a potential claim and informs the beneficiary of the time allowed for commencing the proceeding, or (ii) if the beneficiary is not properly notified, more than five years after the first to occur of the (A) removal, resignation or death of the trustee, (B) the termination of the beneficiary's interest, or (C) the termination of the trust.
- If a trustee provides proper notice to a beneficiary upon the termination of a trust or a transfer of assets to a successor trustee, the beneficiary will lose the right to contest the validity of the trust agreement and bring a claim against the trustee for breach of trust, unless the beneficiary provides the trustee with a written objection or brings such a claim within forty-five days of the notice being sent to the beneficiary.