WISCONSIN’S NEW TRUST LAW…The Wisconsin Legislature and Governor have enacted new trust law which replaces the old trust statutes. Prior trusts will remain valid and legal. However there are some significant changes which you should be aware of.
UNDER THE NEW LAW WHO IS ENTITLED TO INFORMATION ABOUT THE TRUST? ANSWER: PERHAPS MORE INDIVIDUALS THAN YOU WOULD PREFER TO HAVE KNOWLEDGE OF YOUR TRUST
One of the provisions of the new law states that the trustee must give notice of and information about the trust to not only beneficiaries who are currently entitled to receive money from the trust, but to second tier beneficiaries as well. Second tier beneficiaries are not entitled to receive any trust assets at this time, but are next in line.
For example, in a family of two spouses [mother and father] and three children and four grandchildren, upon the death of the first spouse [one of the parents], the trustee must give notice and information to the surviving spouse as well as to the three children, even though the children are not entitled to receive any trust assets at this time. The reason, according to the law, is that the children have the right to know of the existence of the trust, as well as to be reasonably informed, which includes receiving an accounting of the trust assets.
Some families may welcome this mandated reporting and accounting as information which all generations should receive. However, other surviving spouses [parents] may desire that this information be kept confidential. They may not want their children to know who the parents have named as charitable or individual beneficiaries, the total amount of trust assets, and how the trust funds are disbursed every month and year to those receiving trust amounts at the present time.
If you have created a trust and wish to maintain privacy and limit the notices, information, reports and accounting your trustee is now required to give to first and second tier beneficiaries, you can change this requirement. Therefore, for those clients who desire to restrict trust information be given only to those presently entitled to receive trust assets [and not second tier beneficiaries or specific beneficiaries], I can prepare an amendment to your existing trust. Please call to discuss this further.
THE NEW LAW ALSO SETS OUT A CERTIFICATION OF TRUST
The statutes create a new Certification of Trust. This is a statement that the trust is valid and in effect. With this new Certification of Trust you need not give a complete copy of your trust to entities, such as a bank, that require proof of your trust.
We can draft a Certification of Trust for you based upon your existing Trust.
WHO ARE THE PERSONS INVOLVED IN A TRUST UNDER THE LAW?
Under current and continuing trust law, a Settlor is one who creates a trust. This term includes any person who contributes money or property to another’s trust. For example, parents may set up a trust for the benefit of their children, and aunts and uncles may contribute to that trust. All are Settlors.
Trusts are set up to benefit one or more individuals. A Beneficiary is anyone who has the right to receive assets from the trust, whether now or in the future. A Beneficiary also includes a person who holds a legal power to appoint who can receive trust property, i.e., a power of appointment.
A Trustee is a person or a trust company that holds the trust assets for beneficiaries and distributes them in accord with the provisions in the trust agreement.
HAVE TRUSTEES BEEN GIVEN ADDITIONAL POWERS?
Under the new law, in accord with very strict provisions a trustee can invade trust assets and even move assets to a new trust. This power is referred to as ‘decanting’.
NEW PERSONS MAY BE GIVEN AUTHORITY IN YOUR TRUST AND TRUST ASSETS
There are new classifications of people who may be given authority under the new trust law. Trusts in Wisconsin can now have a Trust Protector. The person granted this power by the creator of the trust has substantial authority which I outline below. A Trust Protector can be a trust company or other entity. The new law states that if the Settlor does not specify a particular power exercisable by the trust protector, all of the following powers apply:
a. Interpret or enforce the terms of the trust at the request of the trustee.
b. Approve the trustee’s reports or accounting.
c. Resolve disputes between the trustee or a directing party and a beneficiary.
d. Consent to or veto distributions to a beneficiary.
e. Consent to or veto investment actions.
Trust Protector powers may also include:
a. Amend the trust to respond to opportunities related to state laws restricting the terms of a trust, the distribution of trust property, or the administration of the trust.
b. Amend the trust instrument to achieve a different tax status or to respond to changes in federal or state law.
c. Change the principal place of administration, or the governing law of the trust.
d. Eliminate or modify the interests of a beneficiary, add a new beneficiary or class of beneficiaries, or select a beneficiary from an indefinite class.
e. Modify the terms of a power of appointment granted under the trust.
f. Remove, or appoint a trustee, trust protector, or directing party or a successor.
g. Terminate the trust.
h. Appoint assets to a new trust as specifically set out under the law.
i. Advise the trustee on matters concerning a beneficiary, including whether to provide information to a beneficiary as specifically set out under the law.
j. Correct errors or ambiguities in the terms of the trust that might otherwise require court construction or defeat the settlor’s intent.
There are statutory limitations. However, under certain circumstances these powers may even be held by the settlor, a qualified beneficiary, the trustee, or a directing party. The law is complex and must be complied with strictly, and, of course there are penalties for violations of this law.
Another new authorized person or entity is a Trust Director, also called a Directing Party. Because many trusts have property that is invested or managed, and because many trustees do not have [and may not want] any investment or management responsibility, a Trust Director can be appointed by a Settlor to direct the trustee’s investment or distribution decisions.
A Trust Director could be an investment manager, or even a committee. For example, a Trust Director could manage a unique corporation owned by a Settlor’s trust, or take responsibility for the investment direction of a specialized stock in a portfolio, such as pharmaceutical stock.
Under the new law, there is now a category of Qualified Beneficiaries. A Qualified Beneficiary is a larger term which goes beyond defining a beneficiary currently entitled to receive trust assets, to include ‘permissible distributees of trust income or principal’.
Permissible distributees are really second tier beneficiaries. They are not current beneficiaries, but, if the first-tier-current-beneficiaries die without using up all of the trust assets, then the permissible distributees are next in line to receive the trust assets. Both Beneficiaries and Permissible Distributees are Qualified Beneficiaries.
Under my example given at the beginning of this NewsNotes, the children of parents, even though one parent is still living, are ‘permissible distributees of trust income or principal’, and are therefore entitled to notice, information, reports and accountings.
REASONS TO CREATE A TRUST
Trusts are created for their flexibility and confidentiality, to avoid probate, and set guidelines for minor children and grandchildren. The new law clarifies additional trust benefits to include the care of a pet animal, for charities, the advancement of education or religion, the promotion of health or a community, and the maintenance of a grave, tomb, or monument.
Because of the change in federal tax law using the disclaimer and portability tax options, some older trusts, especially for larger estates, should be reviewed to take advantage of the new tax laws.
CAN YOU ADD PROVISIONS TO YOUR CURRENT TRUST?
- Confidentiality. You can modify your current trust, without rewriting all of it, in order to limit the authority of your trustee to give information, reports, notices, and accounting to those who are not presently-entitled beneficiaries. We can draft an Amendment to your Trust to limit this information.
- Certification of Trust. We can draft a Certification of Trust for you so you will not need to surrender a complete copy of your trust to individuals and entities that are not required to review all of your trust provisions and learn who your beneficiaries are, and what payouts are to be made to them by your Trustee.
- Trust Protector. You can appoint a trust protector and determine which specific legal powers you want to grant to your trust protector.
- Trust Director. You can appoint a trust director and specify what authority you want to grant to your trust protector over what particular assets.
- Co-Trustees. If there are co-trustees, you can state whether one or both trustees are needed to sign contracts and documents on behalf of the trust.
Please contact us to discuss this law further if you believe it affects you. This new trust law goes into effect on July 1, 2014. Some clients like to look at the law themselves: it is available on the Internet as 2013 Wisconsin Act 92.
People ask what I do. After decades of legal practice I realize I am a problem solver with legal training. I have accumulated a lot of experience with interpersonal interactions, and, coupled with my continuous reading of the law, work to apply common sense, skill, understanding, compassion, and knowledge to unravel the range of difficulties brought to me. My clients are at times in crises, sometimes in dilemma, and occasionally merely wanting a sounding board. More formally, I answer that I am a private Wisconsin lawyer and represent and provide legal advice to clients who are individuals, businesses, and professionals throughout Wisconsin. My private practice includes trusts, wills, probate, estate planning, corporate, limited liability company, employment, organizational, and administrative law, and I often consult with accountants and clients on operations, policies and procedures. If I cannot assist a client, then I have all of the lawyer resources of the law firm I am associated with in all of their areas of practice. I am available as an arbitrator and mediator in disputes. I also serve as a public relations spokesperson for my Clients.
If you would like a copy of selected definitions from the Wisconsin Statutes, please contact Paralegal Laura Ordonez, and she will forward them to you.
Very truly yours,
(c)2014 Barry W. Szymanski. All Rights Reserved.