The Pennsylvania Uniform Trust Act, or “PA UTA,” was recently passed as part of Act No. 98 of 2006, and generally becomes effective on November 6, 2006. The PA UTA is the result of several years’ effort to organize current statutes and provisions relating to trusts. The PA UTA will be codified as the new chapter 77 of the Probate, Estates and Fiduciaries Code (PEF Code) and repeals most provisions of the PEF Code that relate to trusts, with the exception of certain jurisdictional provisions of the Orphan’s Court Division. The new UTA should make it much easier for practitioners to find the law relating to trusts and will promote uniformity in the law.
This newsletter will outline some of the significant provisions of the new UTA which may be of particular interest to financial planners, estate planners and trustees; however it is important to consult with your trust counsel regarding specifics and to review the entire PA UTA for more details.
Notice Requirements for Trustees
The PA UTA notice provisions applicable to trustees are intended to balance the trust settlor’s right to privacy with the trust beneficiary’s right to information concerning the trust. These notice provisions require notices similar to those that estate administrators must give to all heirs when an estate is opened. The particular notice requirements depend on whether a revocable trust or irrevocable trust was created, whether the settlor is currently living or is deceased, and whether the settlor has been declared incapacitated. Many notices have a short 30-day deadline.
With respect to revocable trusts, a trustee must send notice to the settlor’s personal representative, spouse or spouse’s guardian, adult children or minor children’s’ guardian and current trust beneficiaries within 30 days after the trustee learns of the settlor’s death. If the trustee learns the settlor has become incapacitated, the trustee must send notice to the settlor’s guardian. There is no requirement to respond to a beneficiary’s request for information while the settlor is alive.
With respect to irrevocable trusts, a trustee must promptly respond to any beneficiary’s reasonable request for information, and within 30 days of the date the trustee learns of the settlor’s death, notice must be sent to all current beneficiaries. Whenever a person who previously did not receive notice becomes a current beneficiary, notice must be sent within 30 days. Notice must also be sent to current beneficiaries within 30 days of the date the trustee learns the settlor has become incapacitated.
A distinction is made between current beneficiaries and any beneficiaries so that a trustee must take care to send notices to the proper parties.
The notice must disclose the following:
- the fact of the trust’s existence
- the identity of the settlor (the person who created the trust)
- contact information for the trustee
- a statement of the beneficiary’s right to receive copies of trust documents.
Other events occurring during the administration of the trust, such as a change of trustee, will require further notice. Because of the many variables with respect to notice requirements, you will want to consult with trust counsel regarding the specific notice requirements for your clients.
Creditors Rights to Revocable Trust Assets
Prior to the PA UTA, there was no statutory guidance concerning the rights of creditors in revocable trust assets upon the death of the trust settlor. Section 7755 of the PA UTA limits the ability of creditors to reach the assets of a revocable trust at the death of the settlor by requiring notice of claim, extending to trusts the protection of certain statutes of limitation for claims against trust assets, and generally tracking the rules that are already applicable to creditors with respect to other estate assets. This section also clarifies that other estate assets shall be applied before revocable trust assets to satisfy creditors’ claims.
Liability of the Trustee
The PA UTA can provide greater protection from liability for a trustee with respect to the administration of a trust. Under prior law, a written release from all present and future beneficiaries and an accounting filed with the court was necessary to release a trustee from liability for his or her administration of the trust. Under Section 7785 of the PA UTA, if a trustee provides certain annual reports to beneficiaries and specific time periods expire without objection from the beneficiaries, the trustee may be relieved of liability for the administration of the trust. To comply with this important provision and receive the benefits, you will want to consult with trust counsel regarding the specific reporting requirements.
Oral Trusts Unenforceable
Section 7737 of the PA UTA states specifically that oral trusts are unenforceable in Pennsylvania, and therefore, similar to the requirements for Wills, a settlor must execute a written instrument to establish an enforceable trust.
Revocation of the Rule Against Perpetuities
Although not technically part of the Uniform Trust Act, the same bill that enacted the PA UTA also repealed the Pennsylvania Rule Against Perpetuities for all interests created after December 31, 2006. This means that beginning January 1, 2006, Pennsylvania joins states such as Delaware and New Jersey that allow long-term trusts. It is important to note that only trusts executed after December 31st can take advantage of this new provision. It is also important to continue to draft trusts with as much flexibility as possible to allow for the reality of changing circumstances in future years, and the generation skipping trust provisions of the Internal Revenue Code.
New Trust Opportunity
The PA UTA Section 7738 provides that a settlor may now create a trust specifically for the care of one or more companion animals alive at the death of the settlor. The statute requires that the trust will terminate upon the death of the last surviving animal and the value of the trust assets must be reasonable with respect to the intended use.