On January 19, 2016, New Jersey joined over 30 other states when it enacted its version of the Uniform Trust Code, P.L. 2015, c.276 (“the NJUTC”). The objective of the legislation is to provide predictability, transparency and fairness for parties involved in the establishment and management of trusts, as well as those charged with their administration.
The NJUTC, which is effective July 17, 2016 applies retroactively, with certain exceptions. It’s advisable that parties to existing trusts, as well as legal practitioners and other advisors confirm the impact of the new law and review planning opportunities now available. To highlight some of the important provisions of the new law:
- Many provisions of the NJUTC can (and, if inconsistent with a Grantor’s wishes, should) be overridden by a trust agreement. Other provisions of the law, however, cannot. For example, if a beneficiary older than 35 so requests, the trustee must provide the beneficiary with copies of both the trust instrument and information regarding the investment and management of the trust assets;
- Non-judicial settlements, designed to minimize or eliminate altogether costs and delays inherent in obtaining approval from the court in matters of trust administration are permitted, subject to limited public policy exceptions. Matters that may be resolved by a non-judicial settlement agreement include the interpretation or construction of the terms of the trust, the approval of a trustee’s accounting, direction to a trustee to refrain from performing a particular act or the grant to a trustee of any desirable power, the resignation or appointment of a trustee, the determination of a trustee’s compensation, the transfer of a trust’s principal place of administration and the liability of a trustee for an action relating to the trust;
- The NJUTC also allows for the modification of a trust if the trustee and all interested beneficiaries agree. There are several instances when the terms of a trust as envisioned by the trust’s creator no longer meet the intended purpose of the trust. For example, a provision directing a trustee to make distributions at certain pre-set ages may no longer be appropriate if the beneficiary is not sufficiently mature enough to handle the asset distributed, if the beneficiary is experiencing dependency issues or if there are potential creditors that could attach the trust funds distributed. Similarly, a beneficiary in a strained marital relationship may prefer that mandatory distributions be eliminated;
- The NJUTC also addresses the relationship between a trustee and an investment advisor, as a result of a new section on powers to direct investment functions. Although the provisions of the NJUTC defining the trustee/investment advisor relationship are clearly defined, such provisions are not within the scope of the mandatory rules and, consequently, can be modified to better conform to a grantor’s objectives. For example, under the default provisions, a fiduciary who has delegated investment functions to an investment advisor has no duty to monitor the conduct of the investment adviser, provide advice to the investment adviser or consult with the investment adviser, communicate with or warn or apprise any beneficiary or third party concerning instances in which the fiduciary would or might have exercised the fiduciary’s own discretion in a manner different from the manner directed by the investment adviser. Grantors should consider whether these provisions are acceptable. It is anticipated that investment advisors will also update their policies as a result of the NJUTC, and those policies should be reviewed by a Grantor who is considering taking advantage of the NJUTC’s new section on powers to direct investment functions.