This post is to announce that, due to a change in circumstances, our firm will be moving from Wisconsin to Minnesota. It's a big change, but it's als...
August 25, 2015
It's been awhile since our last update. However, after (finally) getting through a nearly eight month licensing process that includes a C...
May 11, 2016
Important Changes in the New Wisconsin Trust Code
January 13, 2015
A lot can change in a year, and 2014 was no exception.
One of the biggest changes as it related to estate planning was introduction in July of a new Wisconsin trust code. This change was the result of an ongoing effort to reform some of Wisconsin's more troublesome trust provisions and bring the state more closley in line with other jurisdictions that work off a version of the Model Trust Code. While mostly a positive effort, the new trust code does represent a fundamental shift in many areas of trust planning and administration, so it's worth highlighting.
Below is a summary of some of the most important changes to the law in the new trust code.
1. Changes to Reporting Requirements: One of the biggest, and most important, changes in the new trust code is the change in trustee reporting requirements. Under the prior trust code, trustees of revocable trusts had no specific statutory duty to provide an accounting to any trust beneficiaries. Instead, providing trust accounting was generally considered to be part of the trustee's general duty to "inform and report" to beneficiaries about the trust. Although most lawyers agreed that trustee's had a duty to provide some sort of accounting, the lack of specific guidance meant there was a great deal of confusion about what this duty entailed. What was an acceptable level of detail? Who did the trustee need to report to? These questions ofren led lawyers to advise trustee clients to overreport in order to reduce their potential liability to beneficiaries. The consequence of this advice was that trustees might need to spend an inordinate amount of time preparing accountings to send to people with only a distant interest in the trust.
Recognizing the need for guidance, the new trust code clairifies many of these rules by giving the trustee an affirmative duty to provide an annual trust accouting that includes copies of reciepts and disbursements of the trust as well as a balance sheet of the assets currently in the trust. This accouting must be provided to current trust beneficiaries (those currently entitled to recieve trust distributions, even if this is at the discretion of the trustee) as well as "other qualified beneficiaires who so request." In layman's terms, "qualified beneficiaries" are any person who would be entitled to a trust distrubtion if the current beneficiaries' interests terminated, and anyone entitled to recieve trust assets if the trust were to terminate.
For example, say Mom and Dad create a trust for their children, Suzy and Tommy, and name Cousin Eddie as the person to recieve the trust assets if Suzy and Tommy are no longer eligible to do so. Mom and Dad name their friend Carlie as trustee and give her the discretionary powr to make distirbutions to Suzy and Tommy.
So who does Carlie need to provide an accouting to? Under the above scenario, Carlie would be required to privide an annual accounting to Suzy and Tommy, because they are the current beneficiaries of the trust. This is true even though Carlie has discretionary power over the trust assets, and isn't required to give them anything. In comparision, Carlie would only need to give Cousin Eddie an accounting if he specifically requested it; since he ins't a current beneficiary, but receives trust money only if Suzy and Tommy are no longer beneficiaries, Eddie would be considered an "other qualified beneficiary" under the new trust code.
2. Trusts Are Now Revocable by Default: Under the prior trust code, trusts were assumed to be irrevocable unless specific language was included that made them revocable. This rule frequently operated as a trap for the unwary, as people who retained an inattentive lawyer or who attemped a "do it yourself" trust without fill knowledge of the law could accidently create an irrevocable trust, making it much harder to retrieve those assets later.
The new trust code revereses this rule, and trusts are now revocable by default unless the trust instrument states otherwise. This change was made in recognition that most people who create a trust want the flexibility of a revocable trust. This change makes it much less likley that people will accidently lock up their assets someplace where they cannot be easily retrieved.
3. Testamentary Trusts Are No Longer Subject to Continuing Supervision: In the past, if a person had set up a testamentary trust, that is, a trust created via will, that trust would have been continually overseen by the local probate court. Practically, this meant that the trustee needed to spend time, effort, and possible money to prepare an annual accoutings to submit to the court.
Under the new trust code, this is no longer the case. In fact, no trusts are subject to continuing court supervision unless ". . . ordered by the court upon a petition of a settlor, trustee, or qualified beneficiary. . ." This means that unless an interest person specifically requests it, courts will no longer have any involvement in the management or accouting of a trust.