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Bar News - March 4, 2005 UTC Technical Corrections Bill Includes Substantive Changes By: Todd D. Mayo The Uniform Trust Code ("UTC") became effective on October 1, 2004. A bill introduced in the NH House this session, HB 542, would amend several provisions of the UTC. Although the analysis for the bill simply states that "[t]his bill makes technical corrections to the uniform trust code," the bill, in fact, includes substantive changes to the UTC. The bill notably would:
SPENDTHRIFT TRUSTS The technical corrections bill would expand significantly the ability of a class of preferred creditors to reach a beneficiary's interest in a spendthrift trust. RSA 564-B:5-503(b) currently provides that, subject to certain conditions, a beneficiary's current or future distributions from a trust may be attached by the beneficiary's child, spouse, former spouse, or a judgment creditor who provided services for the protection of the beneficiary's interest in the trust. The bill would amend RSA 564-B:5-503(b) to provide that a "spendthrift provision is unenforceable against" a beneficiary's child, spouse, former spouse, or a judgment creditor who has provided services for the protection of a beneficiary's interest in the trust. Since the spendthrift provision would not be enforceable against those preferred creditors, their remedies would no longer be limited to attaching the beneficiary's current or future distributions. To the extent that a creditor may attach a beneficiary's distributions, the bill would make two changes. First, the bill would amend RSA 564-B:5-504(c)(2) to provide that, if a trustee disregards or abuses a standard of discretion to make distributions, a court may compel the trustee to make a distribution to the beneficiary's spouse or former spouse for alimony, but only "to the extent that the judgment or court order expressly specifies the alimony amount attributable to the most basic food, shelter and medical needs of the spouse or former spouse." Second, the bill would add RSA 564-B:5-504(d), which would provide that, in the case of a trustee who is a beneficiary, a court cannot compel the beneficiary-trustee to make a distribution if:
NOTICE PROVISIONS The UTC establishes a set of default notice provisions. Under RSA 564-B:8-813, the trustee must promptly furnish a copy of the trust instrument to a beneficiary upon the beneficiary's request. Within 60 days of accepting trusteeship, the trustee must notify the qualified beneficiaries of the trustee's name, address, and telephone number. Within 60 days after the creation of an irrevocable trust or the date on which an revocable trust becomes irrevocable, the trustee must notify the qualified beneficiaries of the trust's existence, the identity of the settlor or settlors, the qualified beneficiary's right to request a copy of the trust instrument, and the qualified beneficiary's right to a trustee's report. The trustee must furnish a trustee's report annually (and upon the termination of the trust) to the distributees or permissible distributees of trust income and principal and to any qualified beneficiary who requests a trustee's report. The trustee must notify the qualified beneficiaries in advance of any change in the method or rate of the trustee's compensation. The settlor generally may create a trust that modifies the default notice provisions. For an irrevocable trust, however, the following notice provisions are mandatory:
The technical corrections bill would establish new default and mandatory rules. As amended, RSA 564-B:8-813(c)(1) would provide that, upon request of a qualified beneficiary who has attained 21 years of age or a person who has the rights of a qualified beneficiary, the trustee must promptly furnish a copy of the trust instrument to such beneficiary or person. RSA 564-B:8-813(c)(2) would provide that, within 60 days after the later of (1) accepting trustee or (2) the death of the last surviving settlor, a trustee must notify each qualified beneficiary who has attained 21 years of age and each person who has the rights of a qualified beneficiary of the trustee's acceptance of the trusteeship and the trustee's name, address, and telephone number. RSA 564-B:8-813(c)(3) would provide that, within 60 days of certain events specified by the statute, the trustee must notify each qualified beneficiary who has attained 21 years of age and each person who has the rights of a qualified beneficiary of the trust's existence, of the right to request a copy of the trust instrument, and of the right to a trustee's report. In contrast to current law, the notice would no longer need to identify the settlor. Those rules would be mandatory. With respect to the timing of the notice required by RSA 564-B:8-813(c)(3), the proposed statutory language is potentially ambiguous. The statute would provide that the trustee must furnish notice "by no later than 60 days after the date the trustee acquires knowledge of the creation and initial funding of an irrevocable trust and the death of the last surviving settlor." The proposed language apparently is intended to require notice 60 days after the date on which the trustee acquires knowledge of the later of: (1) the creation of the trust; (2) the initial funding of the trust; and (3) the death of the last surviving settlor. However, the proposed language also can be read to require notice within 60 days after each of those events. A similar lack of clarity exists with respect to the timing of the notice required after a revocable trust becomes irrevocable. As amended, RSA 564-B:8-813(d) would require the trustee of an irrevocable trust to furnish the trustee's report at least annually (and upon the termination of the trust) to (1) each distributee or permissible distributee of trust income or principal, (2) each qualified beneficiary who requests the trustee's report, (3) each person who has the rights of a qualified beneficiary and requests the trustee's report, and (4) each settlor. This rule would be mandatory, except that the settlor would be able to waive the requirement of furnishing the trustee's report to a distributee or permissible distributee. (A qualified beneficiary who has not attained 21 years of age ironically may not be aware of the existence of the trust and the right to request a trustee's report, because the trustee would have no duty to inform such beneficiary under RSA 564-B:8-813(c)(2).) The new RSA 564-B:8-813(i) would provide that, within 60 days after any change in the method or rate of the trustee's compensation, the trustee of an irrevocable trust must notify each qualified beneficiary who has attained 21 years of age and each person who has the rights of a qualified beneficiary of such change. OTHER SUBSTANTIVE CHANGES Charitable Trusts. The technical corrections bill would curb the rights of the director of charitable trusts. First, the bill would amend RSA 564-B:1-110(c) to provide that the director of charitable trusts generally would have the rights of a qualified beneficiary only if the trust does not designate a specific charitable organization as a beneficiary. Second, the bill would amend RSA 564-B:8-813 and provide that the trustee "may permit the director of charitable trusts to view the trust instrument and reports upon request at the office of the trustee instead of providing a copy of the trust instrument and the reports." The UTC does not define "trustee's office" nor require the trustee's office be located in New Hampshire. Requirements for the Creation of a Trust. RSA 564-B:4-402(a)(5) currently requires that "the same person is not the sole trustee and sole beneficiary." The bill would amend RSA 564-B:4-402(a)(5) to require that "the same person is not the sole trustee, the sole current beneficiary and the sole remainder beneficiary." It could be asked how the amendment affects a trust in which another person has an intervening beneficial interest. Consider the following example. A creates a trust of which A is trustee. The trust pays income first to A for a term of years then to B for a term of years, after which the trust terminates and pays the remainder to A. Would the trust be valid under the amended statute? CONCLUSION Contrary to the bill's title, HB 542 makes amendments that are not merely technical in nature. The bill would make substantive changes affecting spendthrift trusts and the rights of beneficiaries. Accordingly, the changes proposed by H.B. 542 warrant a careful vetting. Todd D. Mayo is an attorney with Cleveland, Waters and Bass, P.A. Editor's Note: The views expressed in this article reflect those of the author and not necessarily those of the Bar Association or its officers. The Bar's approach to legislative matters is guided by decisions of the NH Supreme Court and the US Supreme Court. The Board of Governors votes on whether to take advocacy or informational positions on pending legislation, guided by these decisions and with the input of the Bar's Legislation Committee, which meets regularly during the early part of the legislative session to review introduced legislation. |
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