STATE OF NEW
JERSEY
NEW JERSEY
LAW REVISION COMMISSION
FINAL REPORT
Relating to
UNIFORM TRUST CODE
June 9, 2008
John
M. Cannel, Esq., Executive Director
NEW
JERSEY LAW REVISION COMMISSION
153
Halsey Street, 7th Fl., Box 47016
Newark,
New Jersey 07101
973-648-4575
(Fax)
973-648-3123
Email:
njlrc@njlrc.org
Web
site: http://www.njlrc.org
THE UNIFORM TRUST CODE
INTRODUCTION
The
Uniform Trust Code (2000 version) [UTC 2000, rev’d and am’d 2005] was the
product of several years of drafting and was motivated by the objective of
providing as comprehensive Trust Code for all states, as it was the view of
several prominent bodies that the law of trusts was thin in some states,
non-uniform in certain matters, and scattered throughout statutory law. The UTC
2000 primarily was modelled upon the California Trust Code, deemed the best
state codification of trust law, and the Restatement (3rd) of
Trusts. Twenty-one states have enacted UTC 2000.
New Jersey has not adopted the Act. Since 2000, the UTC has undergone several
revisions and amendments. The current version is the amended and revised UTC
2005.
This
Final Report and Recommendations is set forth in two parts. The First Part is a
general description based on a reading of the Official Text and secondary
literature. It highlights main features of UTC 2005 that the drafters, the
reporter and expert commentary deemed significant changes from the predecessor
statute. The UTC Official Text and its commentary run 179 pages.
The
Second Part of this Final Report and Recommendations summarises the work of the
New Jersey ad hoc Committee on the
Uniform Trust Code.
The Committee is comprised of New Jersey’s leading experts in the field of
Trusts and Probates. During a several year period, the Committee studied the
Official Text, modified Official Text language, deleted non-conforming
sections, repealed New Jersey law rendered obsolete by the Uniform Trust Code,
and prepared a summary of their changes that is reproduced here.
In
addition, the Committee has worked with the Office of Legislative Services, and
the New Jersey version is prepared in bill form to the satisfaction of the
Committee. The New Jersey Law Revision Commission has been informed of the
activities of the ad hoc Committee,
has reviewed the Draft Final Bill and endorses without reservation or
qualification the work product of the ad
hoc Committee. Consequently, the New Jersey Law Revision Commission
recommends that the New Jersey Legislature enact the New Jersey Uniform Trust Code.
Part One: General Description
Select Background Issues of UTC 2000
1.
Drafting Process. The drafting committee consisted of the Uniform Law
Commissioners; the reporter was David M. English, the W.F. Fratcher Missouri
Endowed Professor of Law at the University of Missouri-Columbia. Major groups
participating in the process included: the American Bar Association; the
American College of Trust and Estate Counsel; the American Bankers Association;
and the California and Colorado State bars.
2. Reasons
for the Code. The main reason was the growing use of trusts, particularly in
the estate planning area but also developments of commercial trusts, and the
recognition that state law taken as a whole was too thin to support the
structure of trusts. While the primary source of trust law in most states is
the Restatement of Trusts, the drafting committee found gaps in the law and
failure to provide guidance on several practical issues. In addition, there are
uniform related uniform acts that, if adopted, may be repealed and/or
integrated, if a state were to adopt the UTC.
3.
Related Uniform Acts. Examples of related Uniform Acts on trusts and related
subjects are:
§ Uniform
Prudent Investor Act
§ Uniform
Probate Code [Article VII would be repealed]
§ Uniform Trustee
Powers Act
§ Uniform
Common Trust Fund Act
§ Uniform
Custodial Trust Act
§ Uniform
Management of Institutional Funds Act
§ Uniform
Principal and Income Act
§ Uniform
Statutory Rule Against Perpetuities
§ Uniform
Testamentary Additions to Trusts Act
New
Jersey has adopted several of the above: Uniform Prudent Investor Act, Uniform
Probate Code, Uniform Management of Institutional Funds Act, Uniform Principal
and Income Act, and the Uniform Statutory Rules against Perpetuities. In
addition, New Jersey statutory law on trusts and related subjects is enormous.
Therefore, a careful examination of how the UTC would affect New Jersey Law is
a major undertaking, and will require substantial study and time.
4.
Relationship to the Restatement of Trusts. The UTC 2000 was drafted in close
coordination with the Restatement (3rd) of Trusts and with the
revision of the restatement of Property: Wills and Donative Transfers. Consequently, the UTC 2000 may be described
loosely as a codification of a majority of provisions of the Restatement. In
the view of the Reporter, this procedure is superior to the Restatement, as it
is binding law if enacted in the state and provides clarity to practitioners in
the field. Having said this, the UTC 2000 does not displace the common law of
trusts but supplements it.
Select Key Issues of UTC 2000
1.
Scope. The UTC 2000 applies only to express trusts and does not apply to
constructive trusts or other judicially crafted trusts that are not express
trusts. An express trust is a trust created by the express intention of a
settler having the capacity to create that trust and having adequate property
interests to fund it. The purpose may be charitable or noncharitable. §
102. Also see § 401 for methods of creating
trust. An interesting question raised by the UTC, as it applies to commercial
trusts, is whether a trust is a gratuitous transfer or a business deal, that
is, a contract. Charitable trusts certainly are donative transfers [gifts], but
the varieties of commercial trusts do not fall within that category.
Examples of commercial trusts are pension trusts, investment trusts [mutual
funds], real estate investment trusts [REITS], oil and gas royalty trusts and
asset securitization. A 1997 estimate states that more than 90% of money held
in trust in the United States is held in commercial trusts as opposed to
personal trusts.
2.
Default Provisions. The entire UTC 2000 consists of default statutory
provisions that may be overridden by the Trust instrument. The only exceptions
for mandatory rules are set forth in § 105. They are:
§ The
requirements for creating a trust
§ The rights of
third parties in their dealings with the trustees
§ The power of
the court to take certain actions, such as to remove a trustee
§ The trustee’s
obligation act in good faith, in accordance with the purpose of the trust, and
to administer the trust for the benefit of the beneficiaries
§ Limits on the
settlor’s ability to waive the duty to keep beneficiaries informed of the
existence and on the administration of the trust
3.
Nonjudicial Settlement Agreements. UTC 2000 encourages out of court settlement
of contests. “Interested Persons” may by unanimous consent enter into binding
agreements covering a range of matters that a court would have the power to
approve. He list of issues set forth in § 111(d) that may be resolved is
non-exhaustive. For example, “interested persons” may determine the
interpretation or construction of trust terms; transfer the trust’s principal
place of administration; and determine the resignation or appointment of a
trustee. These Nonjudicial settlements raise the question of representation as
sometimes beneficiaries may be incapacitated, not yet born or unascertained. To
resolve this problem, the UTC 2000 has incorporated doctrines of virtual
representation [a not yet born beneficiary represented by another beneficiary
with a similar interest], representation by fiduciaries, and appointment of a
guardian ad litem. § 303 deal with representation issues.
4.
Principal Place of Administration. This issue is important as it affects which
state’s income tax applies to the trust and determines which court has primary
jurisdiction over the trust. The problem arises in the context of trustees,
advisors, operation facilities being located in different jurisdictions. UTC §
108(a) takes the view that a provision in the trust designating the place of
administration is valid provided the trustee’s principal place of business is
located in the designated jurisdiction, or a trustee is a resident of the
designated jurisdiction, or all or part of the trust’s administration occurs in
the designated place. §108 also contains rules for determining the place of
administration where the trust instrument has failed to make a designation.
5.
Uneconomic Trust. A trustee without a court order may terminate a trust if the
value of the trust property is insufficient to justify the cost of
administration. The UTC 2000 uses a bracketed figure of $50 000, but states are
free to raise the amount, for example, to $100,000. This issue is noted because
the Commission approved the Uniform Prudent Management of Institutional Funds
Act that contains in §6 a provision permitting a trustee to remove a
restriction if the fund’ value is less than $100,000. The UTC would add on the
additional authority to terminate the trust and distribute the property.
6.
Revocable Trust Presumption. The UTC 2000 reverses the common law assumption
that trusts are irrevocable. §602(a). The reversal follows the current trend of
most common trusts. The settlor may make the trust irrevocable by providing for
that provision.
6.
Duties and Powers of Trustee. These duties and powers are delineated in detail
in §§801 through 817. As noted previously, these provisions may be overridden
by specific terms in the trust, except for the duty to inform, duty to act in
good faith and requirement to act in accordance with the purposes of the trust
and for the benefit of the beneficiaries.
7.
Remedies for Breach of Trust. These provisions are set forth in §§ 1001 through
1009. According to Professor English, “The measure of damages for breach of
trust is designed to restore the beneficiaries to the position they would have
been in had the breach not occurred. But is also serves another purpose - to
prevent the trustee from profiting from the breach. Consequently, under the
Code the trustee is liable for the higher of the profit made by the trustee or
harm caused to the beneficiaries.Ӥ1002(a).
8.
Dealing with Third Persons. UTC 2000 follows the theory that commercial
transactions between trustees and third parties [that is, persons other than
trustees or beneficiaries] should be treated like any commercial transaction to
lubricate the flow of commerce and advance the purposes of the fund. If
stricter standards applied, third persons would not take the increased risk of
dealing with a trust and take its business elsewhere.
9.
Creditor’s Claims; Spendthrift and Discretionary Trusts. First, the UTC 2000
allows for spendthrift provisions provided the provision restrains the
voluntary and involuntary transfer of the beneficiary’s interest. §502(a). In
this circumstance, a creditor cannot reach the interest of the beneficiary
until the distribution is received by the beneficiary. Exceptions to
spendthrift provisions are set forth in §503, the most significant, though most
obvious, is the unenforceability of a spendthrift provision against a claim of
the State or federal government pursuant to law. Significantly, the UTC 2000
permits creditors of the settlor to reach assets of the trust when the settlor is
designated a beneficiary of the trust. “Consequently, the drafter’s rejected
the approach taken in Alaska and Delaware allowing a settlor to take a
beneficial interest immune from creditor claims. NJ Law in this area is
consistent with the UTC 200. E.g., Estate of DeMartino v. Division of Medical
Assistance and Health Services, 373 N.J. Super 210 (App. Div. 2004), certif. denied, 182 N.J. 485
(2005)(rejecting claim of estate trustee that assets of testamentary trust were
beyond reach of state to recover Medicaid paid benefits for deceased spouse
since at time of creation of trust, decedent had sufficient interest in the
trust assets though that interest fell short of legal and beneficial
ownership).
Part
Two: Ad Hoc Committee Commentary
The general review is secondary to the explanations
and commentary of the ad hoc Committee setting forth its reasons to
modification of the Official Text. It is of pre-eminent importance for
understanding the New Jersey Uniform Trust Code. The Commentary is taken
verbatim from the reports of the Committee members.
NEW JERSEY UNIFORM TRUST CODE
AD HOC COMMITTEE
PREFATORY STATEMENT INTRODUCING SUMMARY OF CODE ARTICLES
The
Uniform Trust Code (2000) is the first national codification of the law of
trusts, promulgated by the National Conference of Commissioners on Uniform
State Laws (NCCUSL), organized to provide states with non-partisan,
well-conceived and well-drafted legislation that brings clarity and stability
to critical areas of state statutory law.
The following is a summary of the work of an ad hoc Committee of
New Jersey lawyers who are either Fellows of the American College of Probate
Counsel, the Real Property Probate and Trust Law Section of the New Jersey
State Bar Association, or both. The Committee members who worked on the
legislation are Michael Backer, Andrew DeMaio, Glenn Henkel, Richard Kahn,
Richard Lert, Robert Pless, Warren Racusin, and Jordan Weitberg. Each article
was assigned to Committee member who acted as reporter. Each report was then
reviewed by the entire Committee. The Uniform Trust Code was primarily intended
to provide statutory and policy guidance for the many jurisdictions that do not
have a well developed body of case law. In the case of New Jersey, there is a
well developed body of State law, which nevertheless has gaps.
The Committee adhered to existing case law, as known, deviating only in
cases where there were
sufficient gaps in the law or there were strong policy grounds for a
reversal of the law. The primary stimulus to the Commissioners’ drafting of the
Uniform Trust Code was the greater use of trusts in recent years, both in
family estate planning and in commercial transactions, both in the United
States and internationally. This greater use of the trust, and consequent rise
in the number of day-to-day questions involving trusts, has led to a
recognition that the trust law in many States is thin. It has also led to a
recognition that the existing Uniform Acts relating to trusts, while numerous,
are fragmentary. The Uniform Trust Code will provide States with precise,
comprehensive, and easily accessible guidance on trust law questions. On issues
on which States diverge or on which the law is unclear or unknown, the Code,
for the first time, provides a uniform rule as a starting point for further
consideration. The Code also contains a number of innovative provisions.
Default Rules: Most of the Uniform Trust Code consists of default rules
that apply only if the terms of the trust fail to address or insufficiently
cover a particular issue. Pursuant to 3B:31-5, a drafter is free to override a
substantial majority of the Code’s provisions. The important exceptions are set
forth in 3B:31-5(b).
Innovative Provisions: Much of the Uniform Trust Code is a codification
of the common law of trusts. But the Code does contain a number of innovative
provisions. Among the more significant are specification of the rules of trust
law that are not subject to override in the trust’s terms (3B:31-5), the
inclusion of a comprehensive article on representation of beneficiaries
(Article 3), rules on trust modification and termination that will enhance
flexibility (3B:31-31 through 3B:31-38), and the inclusion of an article
collecting the special rules pertaining to revocable trusts (Article 6).
NEW JERSEY UNIFORM TRUST CODE
SUMMARY OF ARTICLE 1
GENERAL PROVISIONS AND DEFINITIONS
Article 1 of the UTC contains definitions and general provisions. Within
those definitions and provisions, however, lie some of the UTC's key policy
issues. The definitions within 3B:31-3 lend substance to many of the provisions
throughout the trust code. For example, the definition of "qualified
beneficiary" determines which trust beneficiaries are entitled to notice
of certain actions and whose consent is required for others.
3B:31-11 expands this definition by providing that certain other persons
(including the Attorney
General with respect to a charitable trust) have the same rights as a
qualified beneficiary. 3B:31-5 states that most of the UTC’s provisions are
default rules, which may be modified or negated by the drafter of the trust
instrument. Some UTC provisions, however, are mandatory, and therefore cannot
be modified through a trust instrument. For example, 3B:31-5(b)(11) provides
that the time periods for commencing a judicial proceeding concerning a trust
may not be altered by the terms of a trust instrument. 3B:31-5(b)(8) provides
that a trust agreement may not modify the duty of a trustee to respond to a
beneficiary’s request for information regarding the trust, provided that the
beneficiary has reached the age of 35 and is a qualified beneficiary as defined
in 3B:31-3.
3B:31-7 and 3B:31-8 establish rules regarding the governing law of a
trust and the administrative situs (principal place of administration) of a
trust. As a general rule, the drafter of a trust agreement may designate which
state’s law shall govern and in which jurisdiction the trust shall be
administered. There are, however, exceptions. 3B:31-8 also sets forth a
procedure for changing the situs of a trust.
3B:31-11 provides statutory authority for the nonjudicial settlement of
a trustee’s accounts and other matters related to trust administration. This
provision permits the efficient and economical administration of a trust,
particularly when there are no disputes among the trustee and the
beneficiaries.
The definitions and general provisions within Article 1, together with
the later provisions of the UTC, create certainty and clarity within the field
of trust law in New Jersey.
NEW JERSEY UNIFORM TRUST CODE
ARTICLE 2
JUDICIAL PROCEEDINGS
This article should not be enacted. It relates to the role of the courts
in the administration of trusts, jurisdiction of trustees and beneficiaries,
subject matter jurisdiction and venue, all of which matters are preempted in
New Jersey by the Rules Governing the Courts of New Jersey.
NEW JERSEY UNIFORM TRUST CODE
SUMMARY OF ARTICLE 3
REPRESENTATION
This article deals with representation of beneficiaries, both
representation by fiduciaries (personal representatives, trustees, guardians,
and conservators), and what is known as virtual representation. Representation
is a topic not adequately addressed under the trust law of most States.
Representation is addressed in the Restatement (First) of Property §§ 180-186
(1936), but
the coverage of this article is more complete.
3B:31-17 is the introductory section, laying out the scope of the
article. The representation principles of this article have numerous
applications under this Code. The representation principles of the article
apply for purposes of settlement of disputes, whether by a court or
non-judicially. They apply for the giving of required notices. They apply for
the giving of consents to certain actions.
3B:31-18 through 3B:31-21 cover the different types of representation.
3B:31-18 deals with representation by the holder of a general testamentary
power of appointment. (Revocable trusts and presently exercisable general
powers of appointment are covered by 3B:31-48, which grant the settlor or
holder of the power all rights of the beneficiaries or persons whose interests
are subject to the power). 3B:31-19 deals with representation by a fiduciary,
whether of an estate, trust, conservatorship, or guardianship. The section also
allows a parent without a conflict of interest to represent and bind a minor or
unborn child. 3B:31-20 is the virtual representation provision. It provides for
representation of and the giving of a binding consent by another person
having a substantially identical interest with respect to the particular
issue. 3B:31-21 authorizes the court to appoint a representative to represent
the interests of unrepresented persons or persons
for whom the court concludes the other available representation might be
inadequate. The provisions of this article are subject to modification in the
terms of the trust. See 3B:31-5. Settlors are free to specify their own methods
for providing substituted notice and obtaining substituted consent.
NEW JERSEY UNIFORM TRUST CODE
SUMMARY OF ARTICLE 4
CREATION, VALIDITY, MODIFICATION, AND
TERMINATION OF TRUST
Article 4 deals with how a trust is validly created, modified and
terminated. In particular, the rules on when a trust may be terminated or
modified are a significant addition to this sometimes-murky area of New Jersey
law. The changes include procedures for terminating a trust whose material
purposes have been accomplished and procedures that allow a trust to be
terminated irrespective of material purpose where the settlor and all trust
beneficiaries consent.
The rules on modification and termination generally are designed to
carry out the settlor’s intent consistent with the purposes of the trust, while
giving beneficiaries flexibility where changes would otherwise be limited to
the express terms of the trust that are often non-existent.
3B:31-22 through 3B:31-30 deal with the creation of a trust and the
purposes for a trust. The New Jersey committee decided not to adopt UTC
3B:31-28 that allows a trust to be created based on an oral declaration without
a trust instrument, and added a clause to 3B:31-22 providing that a written
instrument is required in order to create a trust. 3B:31-23 states the
requirements for creation of a trust, including the requirement that the same
person not be the sole trustee and the sole beneficiary. If the sole trustee is
also the sole beneficiary of the income interests, then a different person or
persons must hold the remainder interests or the trust will not be valid.
3B:31-24 recognizes the validity of trusts created in other jurisdictions
provided the requirements
of the statute are met, including the requirement that the trust be in
writing. As for trust purposes, under 3B:31-25 a trust generally may be
enforced if its purposes are lawful, not contrary to public policy, and
possible to achieve. Under 3B:31-27 a trust induced by fraud or duress is not
valid. 3B:31-26 addresses valid purposes for charitable trusts and 3B:31-30
addresses situations where non-charitable trusts without ascertainable
beneficiaries are valid. 3B:31-29 addresses trust for the care of animals.
Although New Jersey has an existing statute that addresses trusts for animals,
the New Jersey committee recommends the adoption of the UTC provision because
the UTC provision is broader and to make our statute consistent with the
uniform law.
3B:31-31 through 3B:31-38 deal with the modification and termination of
a trust. These provisions deal with the purposes for modification and
termination and the procedures for modification and termination. The general
provision is contained in 3B:31-31, which summarizes the grounds on which a
trust may be terminated and specifies which persons may bring an action to
terminate a trust.
3B:31-32 describes the circumstances when a non-charitable trust may be
compelled by the beneficiaries, with or without the consent of the settlor. If
the settlor and all beneficiaries consent, a non-charitable trust may be
modified or terminated even if doing so is inconsistent with a material purpose
of the trust. Without the settlor’s consent, and only with the consent of all
the beneficiaries, the trust may be modified or terminated only if the court
concludes that continuance of the trust is not necessary to achieve any
material purpose of the trust. Significantly, a spendthrift provision in the
terms of the trust is not presumed to be a material purpose of the trust,
though an interested party will be able to offer proof of material purpose.
Under 3B:31-33, a court may modify the administrative or dispositive
terms of a trust if doing so will further the purposes of the trust. 3B:31-34
addresses modification or termination of a charitable trust and 3B:31-35
addresses modification or termination of an uneconomical trust. 3B:31-36
provides for the reformation of a trust to conform to a settlor’s probable
intent and is designed to be consistent with New Jersey’s probable intent
doctrine as it applies to trusts under N.J.S.A. 3B:3-33.1(b). 3B:31-37 permits
modification to achieve a settlor’s tax objectives, consistent with existing
New Jersey law. 3B:31-38 provides for the combination of two or more trusts
into a single trust and the division of a single trust into two or more trusts,
provided the requirements of the section are met. This provision is similar to
existing New Jersey law under N.J.S.A. 3B:14-23(r), and the New Jersey
committee modified the UTC section to conform to the existing statute.
NEW JERSEY UNIFORM TRUST CODE
SUMMARY OF ARTICLE 5
CREDITOR’S CLAIMS; SPENDTHRIFT AND
DISCRETIONARY TRUSTS
Article Five of the Uniform Trust Code deals with spendthrift provisions
in trusts. This Article has generated the most interest and controversy from
States that have considered the UTC. Spendthrift clauses are generally
enforceable in NJ except for the self settled trust. To the extent that the UTC
proposed statutory procedural changes, we suggested that, consistent with
current NJ Practice, procedural issues be reserved for the NJ Court rules.
Article 501 recites the general rule that “spendthrift provisions”
(e.g., trust language that prevents a beneficiary or the beneficiary’s
creditors from attaching the trust corpus) are to be honored. There are a
variety of situations in New Jersey where there are statutory and/or judicially
recognized protection is afforded to a trust. Accordingly, the proposed language
was modified to clarify that existing law, (See N.J.S.A. 2A:17-50, et seq.
which is a statutory restriction on an ability of a creditor to attach an
income stream) continue to override the terms of the UTC rules. Moreover, the
intention of the revision to the language is to protect other existing
provisions such as, N.J.S.A. 25:2-1, et seq. (protection from attachment in the
case of a self-settled Trust that is a Qualified Retirement Account); N.J.S.A.
17B:24-6 (the inability of a creditor to attach proceeds of life insurance
policies); N.J.S.A. 17B:24-7 (the inability of creditors to attach annuity
proceeds); N.J.S.A. 17B:24-8 (the inability of creditors to attach health and
disability insurance benefits); and, N.J.S.A. 17B:24-9 (the inability of creditors
to attach proceeds of group insurance policies).
3B:31-40 addresses both involuntary alienations, as well as voluntary
alienations, and is consistent with a substantial body of New Jersey case law
which has been acknowledged in our state for more than 100 years. Because the
proposed statute seems to restrict the application of the Spendthrift
Provisions to the beneficiary clarification was provided, as the law should
protect
trustee to apply a spendthrift provision to an involuntary alienation.
N.J.S.A. 3B:11-1 is the statute which now applies to spendthrift trusts but is
limited to self settled trusts. Under New Jersey law a spendthrift provision is
a material provision of a trust. Heritage Bank North, N.A. v.
Hunterdon Medical Center, 164
N.J.Super. 33 (App.Div. 1978). Finally, current New Jersey law
authorizes a party to disclaim notwithstanding any limitation in the
nature of a Spendthrift Provision. See, N.J.S.A. 3B:9-11.
The Uniform Trust Code 3B:31-41 provides that there are certain
creditors (i.e., “exception creditors”) that are can attach a Trust with a
spendthrift provision. Other “exception creditors” in the UTC would be (i)
child support; (ii) a spouse; (iii) a former spouse who has a judgment for
support or maintenance; (iv) a judgment creditor who has provided services for
the protection of a beneficiary’s interest: and (v) governmental claims. Our
proposed suggestion for 503 is a deviation from the provision suggested by the
commissioners. In New Jersey there are certain recognized creditors that are
“excepted” from the application of the spendthrift clause, thus additional
provisions are unnecessary. Adding additional “protected classes” as exception
creditors has drawn national criticism. Our proposal clarifies the protection
as to special needs trusts. Under New Jersey law, no creditors can compel
distribution from a trust. The creditor can attach distributions once made to
the beneficiary.
As a general rule, Settlors are authorized to create Trusts for the
benefit of a beneficiary and vest total discretion in a Trustee to administer
the Trust and make distributions without interference by a Court. 3B:31-42
codifies these rules. A Trustee would be subject to the tax authorization
contained in I.R.C. §2041 as already codified in N.J.S.A. 3B:11-4.1, et seq.
The remaining changes from the Uniform act are made to be consistent with
changes to 3B:31-41, discussed above.
3B:31-43 appears to re-codify N.J.S.A. 3B:11-1, where at the right of
any creator to a Trust to receive either income or principal of the Trust, or
any part of either thereof, presently or in the future, shall be freely
alienable and shall be subject to the claims of creditors, notwithstanding any
provision to the contrary in the terms of the Trust.
3B:31-44 provides that creditors can attach a distribution that is
“overdue” and 3B:31-45 clarifies that Trust assets not available for a trustees
personal obligations. Both sections appear to be a valid restatement of New
Jersey law. While we believe the principles would be understood, a codification
of the rules would be helpful.
NEW JERSEY UNIFORM TRUST CODE
SUMMARY OF ARTICLE 6
REVOCABLE TRUSTS
Article 6 addresses the use of revocable trusts as alternatives to Wills
and seeks to clarify certain issues in connection with the use of revocable
trusts. It creates some important changes from current New Jersey law,
particularly (i) presuming that a trust is revocable, and (ii) establishing
that the capacity to make a trust is the same as the capacity to make a Will.
We have generally followed this approach, while making clear that the intent of
the creator of the trust should control in determining whether a trust is to be
revocable or irrevocable.
3B:31-46 provides that the capacity required to create, amend or revoke
a trust is the same as that required to execute a Will. 3B:31-47 provides that
a trust is revocable unless the terms of a trust expressly provide that it is
irrevocable or unless there is clear and convincing evidence that it is
irrevocable. It also sets forth the circumstances in which a settlor, a
settlor’s attorney in fact or guardian may revoke or amend a revocable trust.
3B:31-48 provides that the Trustee of a revocable trust is responsible
only to the settlor of the trust. It also provides that the holder of a power
of withdrawal over a trust has the same rights as a settlor with respect to the
property subject to such power. 3B:31-49 sets forth time limits on contesting
the validity of a revocable trust after the death of the settlor. These time
limits generally conform to the time limits for contesting the probate of a
Will. It also protects a Trustee who makes distributions from the trust after
the settlor’s death unless the Trustee knows of a pending or possible contest.
UNIFORM TRUST CODE
SUMMARY OF ARTICLE 7
OFFICE OF TRUSTEE
Article 7 of the UTC contains a series of default rules dealing with the
office of trustee, many of which are already dealt with and firmly established
in Chapters 11, 14 and 18 of Title 3B, our Rules of Court and our case law.
3B:31-50 and 3B:31-51 address the process of qualifying a trustee, including
procedures for acceptance or declination of this office and bonding the
trustee. 3B:31-52 addresses the duties and responsibilities of and other issues
that may arise between or among co-trustees; for example, this Section permits
co-trustees to act by majority action and specifies how and what happens when
one of several dissents from a course of action and the extent to which the
others shall act when one is unable or has properly delegated performance of a
function. Many of these provisions are already addressed at N.J.S. 3B:11, as
indicated more specifically in our Committee comments.
3B:31-53 through 3B:31-56 address changes in the office of trustee;
i.e., when and how a vacancy must be filled, the procedure for resignation,
grounds for removal and the duties and obligations of a resigning or removed
trustee. Where the Committee determined that these issues
were already adequately addressed in our Probate Code or our Rules of
Court and the provisions
of the Uniform Act were redundant, they have not been enacted.
3B:31-57 and 3B:31-58 prescribe standards for trustee compensation and
reimbursement for expenses advanced. Since the matter of trustee compensation
is addressed comprehensively at N.J.S. 3B:18, 3B:31-57 has not been enacted.
Except for the Court’s authority to issue letters of testamentary trusteeship
and to order bond, all of the provisions of this Article are subject to
modification by the express terms of the governing instrument.
NEW JERSEY UNIFORM TRUST CODE
SUMMARY OF ARTICLE 8
DUTIES AND POWERS OF TRUSTEE
Article Eight sets forth the basic duties and certain powers of
trustees. The concepts are, for the most part, firmly embedded in our statutory
and case law. Several are complementary to and broaden duties and powers stated
in our Prudent Investor Act, such as the fundamental duties to act in good
faith in accordance with the terms of the trust and applicable law, and to act
prudently, impartially, and with undivided loyalty to the trust’s
beneficiaries.
ARTICLE EIGHT enacts specific duties concerning keeping trust
beneficiaries informed, an area of the law heretofore decidedly unclear in New
Jersey and elsewhere. This Article embraces and expands on the authorization in
the Prudent Investor Act to delegate managerial functions. All of the
provisions in this Article may be modified or overridden by the express terms
of the governing instrument, except for the fundamental obligations to act in
good faith for the benefit of the beneficiaries and in accordance with the
terms of the governing instrument creating the trust.
The New Jersey Drafting Committee has proposed some revisions to several
of the sections of the nationally promulgated Uniform Trust Code for purposes of
clarifying specific language, or making the language used consistent with
traditional language familiar to New Jersey fiduciaries and trusts and estates
lawyers. For example, in dealing with the duty of loyalty, we have recommended
reference to the duty of “undivided loyalty.” Several of our proposed
modifications are intended to keep this Article compatible with and
complementary to our Prudent Investor Act, such as the duty of the trustee to
notify qualified beneficiaries of delegations of duties and powers.
We opted not to re-enact our Prudent Investor Act and specific fiduciary
powers codified in N.J.S.A. 3B:14-23 so as to incorporate them into our Uniform
Trust Code because these statutes also govern fiduciaries not subject to the
Uniform Trust Code, such as executors and guardians. The Committee saw no need
to have parallel but somewhat different fiduciary powers exclusively governing
trustees.
NEW JERSEY UNIFORM TRUST CODE
ARTICLE 9
UNIFORM PRUDENT INVESTOR ACT
Enacted, with variations, in New Jersey as the Prudent Investor Act, L.
1997, c. 26, effective June 5, 1997, N.J.S.A. 3B:20-11.1 et. seq. Decision is
not to include within the UTC.
NEW JERSEY UNIFORM TRUST CODE
ARTICLE 10
LIABILITY OF TRUSTEE AND RIGHTS OF
PERSONS DEALING WITH TRUSTEE
Article 10 addresses liability of trustees and trustee dealings with
persons other than beneficiaries. With respect to the rights of beneficiaries,
the article lists the remedies for breach of trust (§1001); specifies how money
damages are to be determined (§1002); and specifies certain trustee defenses,
including the addition of a statute of limitations for claims alleging breach
of trust (§1005) and a provision on enforcing exculpatory clauses (§1008).
With respect to transactions by trustees with third persons, the UTC
encourages trustees and third persons to engage in commercial transactions to
the same extent as if no trust was involved. Addressed are personal liability
of the trustee for contract or tort and the rights of bona fide purchasers.
§1010-1012. To protect the privacy of the trust, a procedure is provided
whereby a trustee may verify authority by means of a certificate instead of
providing the third person with a copy of the trust instrument. §1013. The
Article does not include §1004, which provides that the court, in judicial
proceedings relating to the administration of the trust, may award attorney’s
fees against the trustee, the trust, or even a beneficiary, as justice and
equity may require. The matter of attorney’s fees is left with existing Court
Rules and developing case law.
NEW JERSEY UNIFORM TRUST CODE
SUMMARY OF ARTICLE 11
MISCELLANEOUS PROVISIONS
Article 11 of the UTC contains miscellaneous administrative provisions.
It provides for the effective date of the trust code, and states that the
provisions of the trust code generally apply to trusts created before, on or
after the effective date. The bill provides that it will take effect 180 days
following enactment.
Article 11 also includes a severability clause and clarifies the status of
the trust code under the federal statutory law regarding electronic records and
signatures. 3B:31-93 repeals three sections of existing law that are
unnecessary or are inconsistent with the trust code.
STATUTES RECOMMENDED FOR REPEAL OR AMENDMENT
The following statutes are recommended for repeal:
N.J.S. 3B:11-5, N.J.S. 3B:11-6, N.J.S. 3B:11-7, N.J.S. 3B:11-38, and the
following for amendment: N.J.S. 3B:14-37.
CONCLUSION
Therefore, it is recommended that the New Jersey
Legislature enact the New Jersey Uniform Trust Code in the form produced by the
New Jersey ad hoc Committee on the
Uniform Trust Code.
ARTICLE 1
GENERAL PROVISIONS AND
DEFINITIONS
3B:31-1 SHORT TITLE
This
act shall be known and may be cited as the “Uniform Trust Code”
[Source
UTC § 101]
3B:31-2 SCOPE
This
act applies to express trusts, charitable or noncharitable, and trusts created
pursuant to a statute, judgment, or decree that requires the trust to be
administered in the manner of an express trust.
[Source
UTC § 102]
3B:31-3 DEFINITIONS
As
used in this act:
“Action,”
with respect to an act of a trustee, includes a failure to act.
“Charitable
trust” means a trust, or portion of a trust, created for a charitable purpose
described in subsection a. of N.J.S. 3B:31-26.
“Environmental
law” means a federal, state, or local law, rule, regulation, or ordinance
relating to protection of the environment.
“Interests
of the beneficiaries” means the beneficial interests provided in the terms of
the trust.
“Jurisdiction,”
with respect to a geographic area, includes a State or country.
“Power
of withdrawal” means a presently exercisable general power of appointment other
than a power exercisable only upon consent of the trustee or a person holding
an adverse interest.
“Property”
means anything that may be the subject of ownership, whether real or personal,
legal or equitable, or any interest therein.
“Qualified
beneficiary” means a beneficiary who, on the date the beneficiary’s
qualification is determined: (A) is a distributee or permissible distributee of
trust income or principal; (B) would be a distributee or permissible
distributee of trust income or principal if the interests of the distributees
described in subparagraph (A) terminated on that date; or (C) would be a
distributee or permissible distributee of trust income or principal if the
trust terminated on that date.
“Revocable,”
as applied to a trust, means revocable by the settlor without the consent of
the trustee or a person holding an adverse interest.
“Settlor”
means a person, including a testator, who creates, or contributes property to,
a trust. If more than one person creates or contributes property to a trust,
each person is a settlor of the portion of the trust property attributable to
that person’s contribution except to the extent another person has the power to
revoke or withdraw that portion.
“Spendthrift
provision” means a term of a trust which restrains both voluntary and
involuntary transfer of a beneficiary’s interest.
“State”
means a State of the United States, the District of Columbia, Puerto Rico, the
United States Virgin Islands, or any territory or insular possession subject to
the jurisdiction of the United States. The term includes an Indian tribe or
band recognized by federal law or formally acknowledged by a State.
“Terms
of a trust” means the manifestation of the settlor’s intent regarding a trust’s
provisions as expressed in the trust instrument or as may be established by
other evidence that would be admissible in a judicial proceeding.
“Trust
instrument” means an instrument executed by the settlor that contains terms of
the trust, including any amendments thereto.
“Trustee”
includes an original, additional, and successor trustee, and a cotrustee.
[Source
UTC § 103]
3B:31-4 KNOWLEDGE
a.
Subject to subsection b., a person has knowledge of a fact if the person:
(1)
has actual knowledge of it;
(2)
has received a notice or notification of it; or
(3)
from all the facts and circumstances known to the person at the time in
question, has reason to know it.
b.
An organization that conducts activities through employees has notice or
knowledge of a fact involving a trust only from the time the information was
received by an employee having responsibility to act for the trust, or would
have been brought to the employee's attention if the organization had exercised
reasonable diligence. An organization exercises reasonable diligence if it
maintains reasonable routines for communicating significant information to the
employee having responsibility to act for the trust and there is reasonable
compliance with the routines. Reasonable diligence does not require an employee
of the organization to communicate information unless the communication is part
of the individual's regular duties or the individual knows a matter involving
the trust would be materially affected by the information.
[Source
UTC § 104]
3B:31-5 DEFAULT AND
MANDATORY RULES
a.
Except as otherwise provided in the terms of the trust, this act governs the
duties and powers of a trustee, relations among trustees, and the rights and
interests of a beneficiary.
b.
The terms of a trust prevail over any provision of this act except:
(1)
the requirements for creating a trust;
(2)
the duty of a trustee to act in good faith and in accordance with the purposes
of the trust;
(3)
the requirement that a trust and its terms be for the benefit of its
beneficiaries, and that the trust have a purpose that is lawful, not contrary
to public policy, and possible to achieve;
(4)
the power of the court to modify or terminate a trust under N.J.S. 3B:31-31
through 3B:31-37;
(5)
the effect of a spendthrift provision and the rights of certain creditors and
assignees to reach a trust as provided in N.J.S. 3B:31-39 through 3B:31-44;
(6)
the power of the court under N.J.S. 3B:31-50 to require, dispense with, or
modify or terminate a bond;
(7)
the power of the court under subsection b. of N.J.S. 3B:31-56 to adjust a
trustee’s compensation specified in the terms of the trust which is
unreasonably low or high;
(8)
The duty under subsections a. and b. of NJS 3B:31-71 to respond to the request
of a qualified beneficiary of an irrevocable trust who has attained the age of
35 years for a copy of the trust instrument or for other information reasonably
related to the administration of the trust;
(9)
the effect of an exculpatory term under N.J.S. 3B:31-94;
(10)
the rights under N.J.S. 3B:31-96 through 3B:31-99 of a person other than a
trustee or beneficiary;
(11)
periods of limitation for commencing a judicial proceeding;
(12)
the power of the court to take such action and exercise such jurisdiction as
may be necessary in the interests of justice; and
(13)
the subject-matter jurisdiction of the court and venue for commencing a
proceeding as provided in N.J.S. 3B:31-15 and 3B:31-16.
[Source
UTC § 105]
3B:31-6 COMMON LAW
OF TRUSTS; PRINCIPLES OF EQUITY
The
common law of trusts and principles of equity supplement this act, except to
the extent modified by this act or another statute of this State.
[Source
UTC § 106]
3B:31-7 GOVERNING
LAW
The
meaning and effect of the terms of a trust are determined by:
(1)
the law of the jurisdiction designated in the terms unless the designation of
that jurisdiction’s law is contrary to a strong public policy of the
jurisdiction having the most significant relationship to the matter at issue;
or
(2)
in the absence of a controlling designation in the terms of the trust, the law
of the jurisdiction having the most significant relationship to the matter at
issue.
[Source
UTC § 107]
3B:31-8 PRINCIPAL
PLACE OF ADMINISTRATION
(a)
Without precluding other means for establishing a sufficient connection with
the designated jurisdiction, terms of a trust designating the principal place
of administration are valid and controlling if:
(1)
a trustee’s principal place of business is located in or a trustee is a
resident of the designated jurisdiction; or
(2)
all or part of the administration occurs in the designated jurisdiction.
(b)
A trustee is under a continuing duty to administer the trust at a place
appropriate to its purposes, its administration, and the interests of the
beneficiaries.
(c)
Without precluding the right of the court to order, approve, or disapprove a
transfer, the trustee, in furtherance of the duty prescribed by subsection (b),
may transfer the trust’s principal place of administration to another State or
to a jurisdiction outside of the United States.
(d)
The trustee shall notify the qualified beneficiaries of a proposed transfer of
a trust’s principal place of administration not less than 60 days before
initiating the transfer. The notice of proposed transfer must include:
(1)
the name of the jurisdiction to which the principal place of administration is
to be transferred;
(2)
the address and telephone number at the new location at which the trustee can
be contacted;
(3)
an explanation of the reasons for the proposed transfer;
(4)
the date on which the proposed transfer is anticipated to occur; and
(5)
the date, not less than 60 days after the giving of the notice, by which the
qualified beneficiary must notify the trustee of an objection to the proposed
transfer.
(e)
The authority of a trustee under this section to transfer a trust’s principal
place of administration terminates if a qualified beneficiary notifies the
trustee of an objection to the proposed transfer on or before the date specified
in the notice.
(f)
In connection with a transfer of the trust’s principal place of administration,
the trustee may transfer some or all of the trust property to a successor
trustee designated in the terms of the trust or appointed pursuant to Section
704.
[Source
UTC § 108]
3B:31-9 METHODS AND
WAIVER OF NOTICE
a.
Notice to a person under this act or the sending of a document to a person
under this act must be accomplished in a manner reasonably suitable under the
circumstances and likely to result in receipt of the notice or document.
Permissible methods of notice or for sending a document include first-class
mail, personal delivery, delivery to the person’s last known place of residence
or place of business, or a properly directed textual electronic message.
b.
Notice otherwise required under this act or a document otherwise required to be
sent under this act need not be provided to a person whose identity or location
is unknown to and not reasonably ascertainable by the trustee.
c.
Notice under this act or the sending of a document under this [Code] may be
waived by the person to be notified or sent the document.
d.
Notice of a judicial proceeding must be given as provided in the applicable
rules of civil procedure.
[Source
UTC § 109]
3B:31-10 OTHERS
TREATED AS QUALIFIED BENEFICIARIES
a.
Whenever notice to qualified beneficiaries of a trust is required under this
act, the trustee must also give notice to any other beneficiary who has sent
the trustee a request for notice.
b.
A charitable organization expressly designated to receive distributions under
the terms of a charitable trust or a person appointed to enforce a trust
created for the care of an animal or another noncharitable purpose as provided
in Section 408 or 409 has the rights of a qualified beneficiary under this act.
c.
The [attorney general of this State] has the rights of a qualified beneficiary
with respect to a charitable trust having its principal place of administration
in this State.
[Source
UTC § 110]
3B:31-11 NONJUDICIAL
SETTLEMENT AGREEMENTS
a.
For purposes of this section, “interested persons” means persons whose consent
would be required in order to achieve a binding settlement were the settlement
to be approved by the court.
b.
Except as otherwise provided in subsection c. or any other provision of this
Chapter, interested persons may enter into a binding nonjudicial settlement
agreement with respect to any matter involving a trust.
c.
A nonjudicial settlement agreement is valid only to the extent it does not
violate a material purpose of the trust and includes terms and conditions that
could be properly approved by the court under this act or other applicable law.
d.
Matters that may be resolved by a nonjudicial settlement agreement include:
(1)
the interpretation or construction of the terms of the trust;
(2)
the approval of a trustee’s report or accounting;
(3)
direction to a trustee to refrain from performing a particular act or the grant
to a trustee of any necessary or desirable power;
(4)
the resignation or appointment of a trustee and the determination of a
trustee’s compensation;
(5)
transfer of a trust’s principal place of administration; and
(6)
liability of a trustee for an action relating to the trust.
e.
Any interested person may request the court to approve a nonjudicial settlement
agreement, to determine whether the representation as provided in N.J.S.
3B:31-17 through N.J.S. 3B:31-21 was adequate, and to determine whether the
agreement contains terms and conditions the court could have properly approved.
[Source
UTC § 111]
3B:31-12 RULES OF
CONSTRUCTION
The
rules of construction that apply in this State to the interpretation of and
disposition of property by will also apply as appropriate to the interpretation
of the terms of a trust and the disposition of the trust property.
[Source
UTC § 112]
ARTICLE 3
REPRESENTATION
3B:31-13 REPRESENTATION:
BASIC EFFECT
(a)
Notice to a person who may represent and bind another person under this article
has the same effect as if notice were given directly to the other person.
(b)
The consent of a person who may represent and bind another person under this
article is binding on the person represented unless the person represented
objects to the representation before the consent would otherwise have become
effective.
(c)
Except as otherwise provided in N.J.S. 3B:31-32 and N.J.S. 3B:31-47, a person
who under this article who represents a settlor who lacks capacity may receive
notice and give a binding consent on the settlor's behalf.
[Source
UTC § 301]
3B:31-14 REPRESENTATION
BY HOLDER OF GENERAL TESTAMENTARY POWER
OF APPOINTMENT
a.
To the extent there is no conflict of interest between the holder of a general
testamentary power of appointment and the persons represented with respect to
the particular question or dispute, the holder may represent and bind persons
whose interests, as permissible appointees, takes in default, or otherwise, are
subject to the power.
b.
A holder of a general power of appointment in favor of the holder or holder’s
estate shall not be deemed to have a conflict with permissible appointees and
takers in default.
[Source
UTC § 302]
3B:31-15 REPRESENTATION
BY FIDUCIARIES AND PARENTS
To
the extent there is no conflict of interest between the representative and the
person represented or among those being represented with respect to a
particular question or dispute:
(1)
[conservator] may represent and bind the protected person whose estate the
[conservator] controls;
(2)
[guardian] of the person may represent and bind the ward if a [conservator] of
the ward’s estate has not been appointed;
(3)
an agent having authority to act with respect to the particular question or
dispute may represent and bind the principal;
(4)
a trustee may represent and bind the beneficiaries of the trust;
(5)
a personal representative of a decedent’s estate may represent and bind persons
interested in the estate; and
(6)
a parent may represent and bind the parent’s minor or unborn child if a
[conservator] or [guardian] for the child has not been appointed.
[Source
UTC § 303]
3B:31-16 REPRESENTATION
BY PERSONAL HAVING SUBSTANTIALLY IDENTICAL
INTEREST
Unless
otherwise represented, a minor, incapacitated, or unborn individual, or a
person whose identity or location is unknown and not reasonably ascertainable,
may be represented by and bound by another having a substantially identical
interest with respect to the particular question or dispute, but only to the
extent there is no conflict of interest between the representative and the
person represented.
[Source
UTC § 304]
3B:31-17 APPOINTMENT
OF REPRESENTATIVE
(a)
If the court determines that an interest is not represented under NJS 3B:31-17
-- 3B:31-20, or that the otherwise available representation might be
inadequate, the court may appoint a guardian ad litem or other representative
to receive notice, give consent, and otherwise represent, bind, and act on
behalf of a minor, incapacitated, protected person or unborn individual, or a
person whose identity or location is unknown. A guardian ad litem or other
representative may be appointed to represent several persons or interests.
(b)
Such guardian ad litem or other representative may act on behalf of the
individual represented with respect to any matter arising under this Act,
whether or not a judicial proceeding concerning the trust is pending.
(c)
Such guardian ad litem or other representative may consider the benefit
accruing to the living members of the individual's family.
[Source
UTC § 305]
ARTICLE 4
CREATION, VALIDITY,
MODIFICATION AND TERMINATION OF TRUST
3B:31-18 METHODS OF
CREATING A TRUST
A
trust may be created by:
(1)
transfer of property under a written instrument to another person as trustee
during the settlor’s lifetime or by will or other written disposition taking
effect upon the settlor’s death;
(2)
written declaration by the owner of property that the owner holds identifiable
property as trustee; or
(3)
written exercise of a power of appointment in favor of a trustee.
[Source
UTC § 401]
3B:31-19 REQUIREMENTS
FOR CREATION
(a)
A trust is created only if:
(1)
the settlor has capacity to create a trust;
(2)
the settlor indicates an intention to create the trust;
(3)
the trust has a definite beneficiary or is:
(A)
a charitable trust;
(B)
a trust for the care of an animal, as provided in N.J.S. ________; or
(C)
a trust for a noncharitable purpose, as provided in N.J.S. ________;
(4)
the trustee has duties to perform; and
(5)
the same person is not the sole trustee and the sole beneficiary of all
beneficial interests.
(b)
A beneficiary is definite if the beneficiary can be ascertained now or in the
future, subject to any applicable rule against perpetuities.
(c)
A power in a trustee to select a beneficiary from an indefinite class is valid.
If the power is not exercised within a reasonable time, the power fails and the
property subject to the power passes to the persons who would have taken the
property had the power not been conferred.
[Source
UTC § 402]
3B:31-20 WRITTEN
TRUSTS CREATED IN OTHER JURISDICTIONS
A
written trust not created by will is validly created if its creation complies
with the law of the jurisdiction in which:
(1)
the trust instrument was executed; or
(2)
at the time the trust was created, the settlor was domiciled, had a place of
abode, or was a national; or
(3)
at the time the trust was created, a trustee was domiciled or had a place of
business; or
(4)
at the time the trust was created, any trust property was located.
[Source
UTC § 403]
3B:31-21 TRUST
PURPOSES
A
trust may be enforced only to the extent its purposes are lawful, not contrary
to public policy, and possible to achieve. A trust and its terms must be for
the benefit of its beneficiaries.
[Source
UTC § 404]
3B:31-22 CHARITABLE
PURPOSES; ENFORCEMENT
(a)
A charitable trust is one that is created for the relief of poverty, the
advancement of education or religion, the promotion of health, governmental or
municipal purposes, or other purpose the achievement of which is beneficial to
the community.
(b)
If the terms of a charitable trust do not state a particular charitable purpose
or beneficiary, and the trustee or other person authorized to state a
particular charitable purpose or name a particular charitable beneficiary fails
to make a selection, the court may select one or more charitable purposes or
beneficiaries. The selection must be consistent with the settlor’s intention to
the extent it can be ascertained.
(c)
A proceeding to enforce a charitable trust may be brought by the settlor, by
the Attorney General, by the trust’s beneficiaries or by other persons who have
standing.
[Source
UTC § 405]
3B:31-23 CREATION OF
TRUST INDUCED BY FRAUD, DURESS
A
trust is void to the extent its creation was induced by fraud, duress, or undue
influence.
[Source
UTC § 406]
3B:31-24 TRUST FOR
CARE OF ANIMAL
(a)
A trust may be created to provide for the care of an animal alive during the
settlor’s lifetime. The trust terminates upon the death of the animal or, if
the trust was created to provide for the care of more than one animal alive
during the settlor’s lifetime, upon the death of the last surviving animal.
(b)
A trust authorized by this section may be enforced by a person appointed in the
terms of the trust or, if no person is so appointed, by a person appointed by
the court. A person having an interest in the welfare of the animal may request
the court to appoint a person to enforce the trust or to remove a person
appointed.
(c)
Property of a trust authorized by this section may be applied only to its
intended use, except to the extent the court determines that the value of the
trust property exceeds the amount required for the intended use. Except as
otherwise provided in the terms of the trust, property not required for the
intended use must be distributed to the settlor, if then living, otherwise to
the settlor’s estate.
[Source
UTC § 408]
3B:31-25 NONCHARITABLE
TRUST WITHOUT ASCERTAINABLE BENEFICIARY
Except
as otherwise provided in N.J.S. ________ or by another statute, the following
rules apply:
(1)
A trust may be created for a noncharitable but otherwise valid purpose without
a definite or definitely ascertainable beneficiary or for a noncharitable
purpose to be selected by the trustee.
(2)
A trust authorized by this section may be enforced by the settlor or by a
person appointed in the terms of the trust or, if no person is so appointed, by
a person appointed by the court.
(3)
Property of a trust authorized by this section may be applied only to its
intended use, except to the extent the court determines that the value of the
trust property exceeds the amount required for the intended use. Except as
otherwise provided in the terms of the trust, property not required for the
intended use must be distributed to the settlor, if then living, otherwise to
the settlor’s estate.
[Source
UTC § 409]
3B:31-26 MODIFICATION
OR TERMINATION OF TRUST; PROCEEDINGS FOR
APPROVAL OR DISAPPROVAL
(a)
In addition to the methods of termination prescribed by N.J.S. _______ through
N.J.S. ________, a trust terminates to the extent the trust is revoked or
expires pursuant to its terms, no purpose of the trust remains to be achieved,
or the purposes of the trust have become unlawful, contrary to public policy of
this State, or impossible to achieve.
(b)
A proceeding to approve or disapprove a proposed modification or termination
under N.J.S. ________ through N.J.S. ________, or trust combination or division
under N.J.S. ________, may be commenced by a trustee or beneficiary, and a
proceeding to approve or disapprove a proposed modification or termination
under N.J.S. ________ may be commenced by the settlor. The settlor of a
charitable trust may maintain a proceeding to modify the trust under N.J.S.
_________.
[Source
UTC § 410]
3B:31-27 MODIFICATION
OR TERMINATION OF NONCHARITABLE IRREVOCABLE
TRUST BY CONSENT
(a)
A noncharitable irrevocable trust may be modified or terminated upon consent of
the settlor and all beneficiaries, even if the modification or termination is
inconsistent with a material purpose of the trust. A settlor’s power to consent
to a trust’s modification or termination may be exercised by an agent under a
power of attorney only to the extent expressly authorized by the power of
attorney or the terms of the trust; or by the settlor’s guardian with the
approval of the court supervising the guardianship if an agent is not so
authorized.
(b)
A noncharitable irrevocable trust may be terminated upon consent of all of the
beneficiaries if the court concludes that continuance of the trust is not
necessary to achieve any material purpose of the trust. A noncharitable
irrevocable trust may be modified upon consent of all of the beneficiaries if
the court concludes that modification is not inconsistent with a material
purpose of the trust.
(c)
A spendthrift provision in the terms of the trust is not presumed to constitute
a material purpose of the trust.
(d)
Upon termination of a trust under subsection (a) or (b), the trustee shall
distribute the trust property as agreed by the beneficiaries.
(e)
If not all of the beneficiaries consent to a proposed modification or
termination of the trust under subsection (a) or (b), the modification or
termination may be approved by the court if the court is satisfied that:
(1)
if all of the beneficiaries had consented, the trust could have been modified
or terminated under this section; and
(2)
the interests of a beneficiary who does not consent will be adequately
protected.
[Source
UTC § 411]
3B:31-28 MODIFICATION
OR TERMINATION BECAUSE OF UNANTICIPATED CIRCUMSTANCES OR INABILITY TO
ADMINISTER TRUST EFFECTIVELY
(a)
The court may modify the administrative or dispositive terms of a trust or
terminate the trust if, because of circumstances not anticipated by the
settlor, modification or termination will further the purposes of the trust. To
the extent practicable, the modification must be made in accordance with the
settlor’s probable intent.
(b)
The court may modify the administrative terms of a trust if continuation of the
trust on its existing terms would be impracticable or wasteful or impair the
trust’s administration.
(c)
Upon termination of a trust under this section, the trustee shall distribute
the trust property in a manner consistent with the purposes of the trust.
[Source
UTC § 412]
3B:31-29 MODIFICATION
OR TERMINATION OF CHARITABLE TRUST (CY PRES)
(a)
Except as otherwise provided in subsection (b), if a particular charitable
purpose becomes unlawful, impracticable, impossible to achieve, or wasteful:
(1)
the trust does not fail, in whole or in part;
(2)
the trust property does not revert to the settlor or the settlor’s estate; and
(3)
the court may modify or terminate the trust by directing that the trust
property
be
applied or distributed, in whole or in part, in a manner consistent with the
settlor’s charitable purposes.
(b)
A provision in the terms of a charitable trust that would result in
distribution of the trust property to a noncharitable beneficiary prevails over
the power of the court under subsection (a).
[Source
UTC § 413]
3B:31-30 MODIFICATION
OR TERMINATION OF UNECONOMIC TRUST
(a)
After notice to the qualified beneficiaries, the trustee of a trust having a
total value less than $100,000 may terminate the trust if the trustee concludes
that the value of the trust property is insufficient to justify the cost of
administration.
(b)
The court may modify or terminate a trust or remove the trustee and appoint a
different trustee if it determines that the value of the trust property is
insufficient to justify the cost of administration.
(c)
Upon termination of a trust under this section, the trustee shall distribute
the trust property in a manner consistent with the purposes of the trust.
(d)
This section does not apply to an easement for conservation or preservation.
[Source
UTC § 414]
3B:31-31 REFORMATION
TO CORRECT MISTAKES
The
court may reform the terms of a trust, even if unambiguous, to conform the
terms to the settlor’s probable intent if it is proved by clear and convincing
evidence that there was a mistake of fact or law, whether in expression or
inducement.
[Source
UTC § 415]
3B:31-32 MODIFICATION
TO ACHIEVE SETTLOR’S TAX OBJECTIVES
To
achieve the settlor’s tax objectives, the court may modify the terms of a trust
in a manner that is not contrary to the settlor’s probable intent. The court
may provide that the modification has retroactive effect.
[Source
UTC § 416]
3B:31-33 COMBINATION
AND DIVISION OF TRUSTS
(a)
Subject to subsection (b),
(1)
the trustees of two or more trusts or parts of trusts may combine the trusts or
parts thereof into a single trust, even if such trusts or parts thereof are
created by different settlors or under different instruments, and even if the
trusts have different trustees; and
(2)
the trustees of a single trust may divide the trust into two or more separate
trusts, in which case distributions provided by the governing instrument may be
made from one or more of the separate trusts.
(b)
A combination or division under this section may be effected only if the result
does not impair rights of any beneficiary or adversely affect achievement of
the purposes of the trust.
[Source
UTC § 417]
ARTICLE 5
CREDITOR’S CLAIMS;
SPENDTHRIFT AND DISCRETIONARY TRUSTS
3B:31-34 RIGHTS OF
BENEFICIARY'S CREDITOR OR ASSIGNEE
Except
as otherwise provided by law, to the extent a beneficiary's interest is not
protected by a spendthrift provision, a creditor or assignee of the beneficiary
may reach the beneficiary's interest by attachment of present or future distributions
to or for the benefit of the beneficiary, subject to N.J.S.A. 2A:17-50 et seq.
or any other applicable law. The court may limit the award to such relief as is
appropriate under the circumstances.
[Source
UTC § 501]
3B:31-35 SPENDTHRIFT
PROVISION
(a)
A spendthrift provision is valid only if it restrains both voluntary and
involuntary transfer of a beneficiary's interest.
(b)
A term of the trust providing that the interest of a beneficiary is held
subject to a "spendthrift trust” or words of similar import, is sufficient
to restrain both voluntary and involuntary transfer of the beneficiary's
interest.
(c)
A beneficiary may not transfer an interest in a trust in violation of a valid
spendthrift provision and, except as otherwise provided in sections 501 to 507,
inclusive, of this act, a creditor or assignee of the beneficiary may not reach
the interest or a distribution by the trustee before its receipt by the
beneficiary.
(d)
A spendthrift provision is valid even though a beneficiary is named as the sole
trustee or as a co-trustee of the trust.
[Source
UTC § 502]
3B:31-36 EXCEPTIONS
TO SPENDTHRIFT PROVISION
Even
if a trust contains a spendthrift provision, the following shall apply:
(a)
Special Needs
(1)
Protected Person means a person who is
a)
an aged, blind, or disabled individual as defined at 42 U.S.C. 1382c;
b)
developmentally disabled as defined at N.J.S. 30:1AA-2; or
c)
under age 18 (or over age 18 and a full time student) with serious disabilities
that reasonably may prevent the individual from being self sufficient as an
adult.
(2)
Special Needs Trust means an OBRA ’93 Trust (as defined at N.J.S. 3B:11-
37)
or other trust governed by a written trust instrument which
a)
grants trustees full discretion to determine whether and when to distribute;
b)
limits distributions during the trust term to distributions to benefit one or
more Protected Persons (although others may realize incidental benefits);
c)
provides that the trustees do not have any obligation to pay the Protected
Persons’ obligations or fund their support;
d)
does not give the Protected Persons any right to require trustees to distribute
at a specific time or for a particular purpose or to assign or encumber
interests in the trust; and
e)
evidences the grantor’s intent to supplement rather than replace or impair
government assistance that the Protected Persons receive or for which they
otherwise may be eligible.
(b)
Notwithstanding any other provision of this Act or other law
(1)
trustees of a Special Needs Trust are not required to distribute for any
particular purpose or at ant particular time during the trust term;
(2)
all creditors (including, but not limited to, spendthrift exception creditors)
of a Protected Person may not reach or attach a Protected Person’s interest in
a Special Needs Trust and neither creditors nor courts may require the trustees
to distribute to satisfy a Protected Person’s creditor’s claim;
(3)
a Special Needs Trust shall not be required to repay government aid provided to
a Protected Person unless the aid was provided on the basis that the Special
Needs Trust would repay the aid when the Protected Person dies (or the Special
Needs Trust sooner terminates) and the Special Needs Trust instrument expressly
calls for such repayment; and
(4)
a Special Needs Trust shall terminate at such time as provided in its governing
instrument.
(c)
Notwithstanding sections 501 and 502 of this Section, trustees of a Special
Needs Trust must exercise their discretion in good faith to further trust
purposes and courts may exercise their equity authority to remedy trustee
abuses of discretion.
[Source
UTC § 503]
3B:31-37 DISCRETIONARY
TRUSTS EFFECT OF STANDARD
(a)
Whether or not a trust contains a spendthrift provision, a creditor of a
beneficiary may not compel a distribution that is subject to the trustee’s
discretion, even if:
(1)
The discretion is expressed in the form of a standard of distribution; or
(2)
The trustee has abused the discretion.
(b)
This section does not limit the right of a beneficiary to maintain a judicial
proceeding against a trustee for an abuse of discretion or failure to comply
with a standard for distribution.
(c)
With respect to the powers set forth in N.J.S.A. 3B:11-4.1, the provisions of
this section shall apply even though the beneficiary is the sole trustee or a
co-trustee of the trust.
[Source
UTC § 504]
3B:31-38 CREDITOR’S
CLAIM AGAINST SETTLOR
(a)
Whether or not the terms of a trust contain a spendthrift provision, the
following rules apply:
(1)
During the lifetime of the settlor, the property of a revocable trust is
subject to the claims of the settlor's creditors.
(2)
With respect to an irrevocable trust, a creditor or assignee of the settlor may
reach the maximum amount that can be distributed to or for the settlor's
benefit. If a trust has more than one settlor, the amount the creditor or
assignee of a particular settlor may reach may not exceed the settlor's
interest in the portion of the trust attributable to that settlor's
contribution.
(3)
After the death of a settlor, and subject to the settlor's right to direct the
source from which liabilities will be paid, the property of a trust that was
revocable at the settlor's death is subject to claims of the settlor's
creditors, costs of administration of the settlor's estate, the expenses of the
settlor's funeral and disposal of remains, and to a surviving spouse and
children to the extent the settlor's probate estate is inadequate to satisfy
those claims, costs, expenses, and
(b)
For purposes of this section:
(1)
during the period the power may be exercised, the holder of a power of
withdrawal is treated in the same manner as the settlor of a revocable trust to
the extent of the property subject to the power; and
(2)
upon the lapse, release, or waiver of the power, the holder is treated as the
settlor of the trust only to the extent the value of the property affected by
the lapse, release, or waiver exceeds the greater of the amount specified in
Section 2041(b)(2) or 2514(e) of the Internal Revenue Code of 1986, or Section
2503(b) of the Internal Revenue Code of 1986, in each case as in effect on the
effective date of this act, or as later amended.
[Source
UTC § 505]
3B:31-39 OVERDUE
DISTRIBUTION
(a)
For the purposes of this section, "mandatory distribution" means a
distribution of income or principal that the trustee is required to make to a
beneficiary under the terms of the trust, including a distribution upon
termination of the trust. The term excludes a distribution subject to the
exercise of the trustee's discretion, regardless of whether the terms of the
trust (1) include a support or other standard to guide the trustee in making
distribution decisions, or (2) provide that the trustee "may" or
"shall" make discretionary distributions, including distributions
pursuant to a support or other standard.
(b)
Except as otherwise provided in N.J.S.A. 3B:11-4.1 of this act, whether or not
a trust contains a spendthrift provision, a creditor or assignee of a
beneficiary may reach a mandatory distribution of income or principal,
including a distribution upon termination of the trust, if the trustee has not
made the distribution to the beneficiary within a reasonable time after the
mandated distribution date.
[Source
UTC § 506]
3B:31-40 PERSONAL
OBLIGATIONS OF TRUSTEE
Trust
property is not subject to personal obligations of the trustee, even if the
trustee becomes insolvent or bankrupt.
[Source
UTC § 507]
ARTICLE 6
REVOCABLE TRUSTS
3B:31-41 CAPACITY OF
SETTLOR OF REVOCABLE TRUST
The
capacity required to create, amend, revoke, or add property to a revocable
trust, or to direct the actions of the trustee of a revocable trust, is the
same as that required to make a will.
[Source
UTC § 601]
3B:31-42 REVOCATION
OR AMENDMENT OF REVOCABLE TRUST
(a)
Unless the terms of a trust expressly provide that the trust is irrevocable, or
that it is proved by clear and convincing evidence that the settlor intended
for it to be irrevocable, the settlor may revoke or amend the trust. This
subsection does not apply to a trust created under an instrument executed
before [the effective date of this [Code]].
(b)
If a revocable trust is created or funded by more than one settlor:
(1)
to the extent the trust consists of community property, the trust may be
revoked by either spouse acting alone but may be amended only by joint action
of both spouses; and
(2)
to the extent the trust consists of property other than community property,
each settlor may revoke or amend the trust with regard to the portion of the
trust property attributable to that settlor’s contribution; and
(c)
The settlor may revoke or amend a revocable trust:
(1)
by substantial compliance with a method provided in the terms of the trust; or
(2)
if the terms of the trust do not provide a method or the method provided in the
terms is not expressly made exclusive, by:
(A)
a later will or codicil that expressly refers to the trust or specifically
devises property that would otherwise have passed according to the terms of the
trust; or
(B)
any other writing manifesting clear and convincing evidence of the settlor’s
intent.
(d)
Upon revocation of a revocable trust, the trustee shall deliver the trust
property to the settlor as the settlor directs.
(e)
A settlor’s powers with respect to revocation, amendment, or distribution of
trust property may be exercised by an agent under a power of attorney only to
the extent expressly authorized by the terms of the trust and the power.
(f)
A guardian of the settlor may exercise a settlor’s powers with respect to
revocation, amendment, or distribution of trust property only with the approval
of the court supervising the guardianship.
(g)
A trustee who does not know that a trust has been revoked or amended is not
liable to the settlor or settlor’s successors in interest for distributions
made and other actions taken on the assumption that the trust had not been
amended or revoked.
[Source
UTC § 602]
3B:31-43 SETTLOR’S
POWERS; POWERS OF WITHDRAWAL
(a)
While a trust is revocable [delete optional “and the settlor has capacity to
revoke the trust”], rights of the beneficiaries are subject to the control of, and
the duties of the trustee are owed exclusively to, the settlor.
[Source
UTC § 603]
3B:31-44 LIMITATION
ON ACTION CONTESTING VALIDITY OF REVOCABLE TRUST; DISTRIBUTION OF TRUST
PROPERTY
(a)
A person may commence a judicial proceeding to contest the validity of a trust
that was revocable at the settlor’s death within the earlier of:
(1)
[three] years after the settlor’s death; or
(2)
“4 months, in the case of a resident, or 6
months, in the case of a nonresident” after the trustee sent the person a copy
of the trust instrument and a notice informing the person of the trust’s
existence, of the trustee’s name and address, and of the time allowed for
commencing a proceeding.
(b)
Upon the death of the settlor of a trust that was revocable at the settlor’s
death, the trustee may proceed to distribute the trust property in accordance
with the terms of the trust. The trustee is not subject to liability for doing
so unless:
(1)
the trustee knows of a pending judicial proceeding concerning the validity of
the trust; or
(2)
a potential contestant has notified the trustee in writing of a possible
judicial proceeding to contest the validity of the trust and the trustee has
received written notice of a judicial proceeding commenced within 90 days after
the contestant sent the notification.
(c)
A beneficiary of a trust that is determined to have been invalid is liable to
return any distribution received.
[Source
UTC § 604]
ARTICLE 7
OFFICE OF TRUSTEE
3B:31-45 ACCEPTING
OR DECLINING TRUSTEESHIP
a.
Except as otherwise provided in subsection (c), a person designated as trustee
accepts the trusteeship:
(1)
in the case of a testamentary trustee or substituted testamentary trustee, as
provided in N.J.S. 3B:11-2, and
(2)
in the case of any other trustee,
(i)
by substantially complying with a method of acceptance provided in the terms of
the trust; or
(ii)
if the terms of the trust do not provide a method or the method provided in the
terms is not expressly made exclusive, by accepting delivery of the trust
property, exercising powers or performing duties as trustee, or otherwise
indicating acceptance of the trusteeship.
b.
A person designated as trustee who has not yet accepted the trusteeship may
renounce the trusteeship. A designated trustee who does not accept the
trusteeship within a reasonable time after knowing of the designation is deemed
to have renounced the trusteeship.
c.
A person designated as trustee, without accepting the trusteeship, may:
(1)
act to preserve the trust property if, within a reasonable time after acting, the
person sends a renunciation of the trusteeship to the settlor or, if the
settlor is dead or lacks capacity, to the qualified beneficiaries and to any
designated successor trustee; and
(2)
inspect or investigate trust property to determine potential liability under
environmental or other law or for any other purpose.
3B:31-46 TRUSTEE’S
BOND
a.
A trustee shall give bond to secure performance of the trustee's duties as
prescribed by N.J.S. 3B:15-1 et seq. if the court or surrogate finds that a
bond is needed to protect the interests of the beneficiaries or is required by
the terms of the trust and the court has not dispensed with that requirement.
b.
Unless otherwise directed by the court, the cost of a bond is an expense of the
trust.
[Source
UTC § 702]
3B:31-47 COTRUSTEES
(a)
Cotrustees who are unable to reach a unanimous decision may act by majority
decision. A dissenting trustee who joins in carrying out a decision of the
majority but expresses his dissent in writing promptly to his cotrustees shall
not be liable for the act of the majority.
(b)
If a vacancy occurs in a cotrusteeship, the remaining trustee or cotrustees
shall act for the trust unless the trust instrument provides otherwise.
(c)
A cotrustee must participate in the performance of a trustee’s function unless
the cotrustee is unavailable to perform the function because of absence,
illness, disqualification under other law or other temporary incapacity or the
cotrustee has properly delegated the performance of the function.
(d)
If a cotrustee is unavailable to perform duties because of absence, illness,
disqualification under other law, other temporary incapacity or a vacancy
remains unfilled and prompt action is necessary to achieve the purposes of the
trust or to avoid injury to the trust property, the remaining cotrustee or a
majority of the remaining cotrustees shall act for the trust.
(e)
A trustee may not delegate to a cotrustee the performance of a function the
settlor reasonably expect the trustees to perform jointly. Unless a delegation was
irrevocable, a trustee may revoke a delegation previously made.
(f)
A trustee who does not join in an action of a cotrustee or cotrustees because
of absence, illness, disqualification or other temporary incapacity shall not
be liable for that action.
(g)
Notwithstanding subsection (a) or (f), every trustee shall exercise reasonable
care to:
(1)
prevent a cotrustee from committing a breach of trust; and
(2)
compel a cotrustee to redress a breach of trust.
[Source
UTC § 703]
3B:31-48 VACANCY IN
TRUSTEESHIP; APPOINTMENT OF SUCCESSOR
(a)
A vacancy in a trusteeship occurs if:
(1)
a person designated as trustee renounces the trusteeship;
(2)
a person designated as trustee cannot be identified or does not exist;
(3)
a trustee resigns or is discharged;
(4)
a trustee is disqualified or removed;
(5)
a trustee dies; or
(6)
a guardian or conservator is appointed for an individual serving as trustee.
(b)
If one or more cotrustees remain in office, a vacancy in a trusteeship need not
be filled unless the trust instrument provides otherwise. A vacancy in a
trusteeship shall be filled if the trust has no remaining trustee.
(c)
A vacancy in a trusteeship of a noncharitable trust that is required to be
filled shall be filled in the following order of priority:
(1)
by a person designated pursuant to the terms of the trust to act as successor
trustee;
(2)
by a person appointed by unanimous agreement of the qualified beneficiaries; or
(3)
by a person appointed by the court.
(d)
A vacancy in a trusteeship of a charitable trust that is required to be filled
shall be filled in the following order of priority:
(1)
by a person designated pursuant to terms of the trust to act as successor
trustee; or
(2)
by a person appointed by the court.
(e)
Whether or not a vacancy in a trusteeship exists or is required to be filled,
the court may appoint an additional trustee or special fiduciary whenever the
court considers the appointment desirable for the administration of the trust.
[Source
UTC § 704]
3B:31-49 RESIGNATION
OF TRUSTEE
(a)
A trustee may resign:
(1)
upon at least 30 days’ notice to the qualified beneficiaries, the settlor, if
living, all cotrustees, and the trustee or trustees, if any, designated
pursuant to the terms of the trust to succeed the resigning trustee; or
(2)
with the approval of the court.
(b)
In approving a resignation, the court may issue orders and impose conditions
reasonably necessary for the protection of the trust property.
(c)
Any liability of a resigning trustee or of any sureties on the trustee’s bond
for acts or omissions of the trustee is not discharged or affected by the
trustee’s resignation.
[Source
UTC § 705]
3B:31-50 REMOVAL OF
TRUSTEE
(a)
The settlor, a cotrustee, or a beneficiary may request the court to remove a
trustee, or a trustee may be removed by the court on its own initiative.
(b)
The court may remove a trustee for any of the reasons stated in N.J.S.
3B:14-21.
(c)
Pending a final decision on a request to remove a trustee, or in lieu of or in
addition to removing a trustee, the court may order such appropriate relief as
may be necessary to protect the trust property or the interests of the
beneficiaries.
[Source
UTC § 706]
3B:31-51 DELIVERY OF
PROPERTY BY FORMER TRUSTEE
(a)
Unless a cotrustee remains in office or the court otherwise orders, and until
the trust property is delivered to a successor trustee or other person entitled
to it, a trustee who has resigned or been removed has the duties of a trustee
and the powers necessary to protect the trust property.
(b)
A trustee who has resigned or been removed shall proceed expeditiously to
deliver the trust property within the trustee’s possession to the cotrustee,
successor trustee, or other person entitled to it, but a resigning trustee may
retain a reasonable reserve for the costs of finalizing that trustee’s
administration of the trust.
[Source
UTC § 707]
3B:31-52 REIMBURSEMENT
OF EXPENSES
(a)
In addition to the compensation allowed by N.J.S. 3B:18-2 et. seq., a trustee
is entitled to be reimbursed out of the trust property for:
(1)
expenses that were properly incurred in the administration of the trust; and
(2)
to the extent necessary to prevent unjust enrichment of the trust, expenses
that were not properly incurred in the administration of the trust.
(b)
An advance by a trustee of money or other property for the protection of the
trust gives rise to a lien against trust property to secure reimbursement.
ARTICLE 8
DUTIES AND POWERS OF TRUSTEE
3B:31-53 DUTY TO
ADMINISTER TRUST
Upon
acceptance of a trusteeship, the trustee shall administer the trust in good
faith, in accordance with its terms and purposes and interests of the
beneficiaries, and in accordance with this act and other applicable law.
[Source
UTC § 801]
3B:31-54 DUTY OF
LOYALTY
(a)
A trustee shall administer the trust with undivided loyalty to and solely in
the best interests of the beneficiaries.
(b)
Subject to the rights of persons dealing with or assisting the trustee as
provided in Section 1012, a sale, encumbrance, or other transaction involving
the investment or management of trust property entered into by the trustee for
the trustee’s own personal account or which is otherwise affected by a conflict
between the trustee’s fiduciary and personal interests is voidable by a
beneficiary affected by the transaction unless:
(1)
the transaction was authorized by the terms of the trust;
(2)
the transaction was approved by the court;
(3)
the beneficiary did not commence a judicial proceeding within the time allowed
by Section 1005;
(4)
the beneficiary consented to the trustee’s conduct, ratified the transaction,
or released the trustee in compliance with Section 1009; or
(5)
the transaction involves a contract entered into or claim acquired by the
trustee before the person became trustee.
(c)
A sale, encumbrance, or other transaction involving the investment or
management of trust property is presumed to be affected by a conflict between
personal and fiduciary interests if it is entered into by the trustee with:
(1)
the trustee’s spouse or domestic partner;
(2)
the trustee’s parents, parents’ descendants, or the spouse or domestic partner
of any of the foregoing;
(3)
an agent or attorney of the trustee; or
(4)
a corporation or other person or enterprise in which the trustee, or a person
that owns a significant interest in the trustee, has an interest that might
affect the trustee’s judgment.
(d)
A transaction between a trustee and a beneficiary that does not concern trust
property but that occurs during the existence of the trust or while the trustee
retains significant influence over the beneficiary and from which the trustee
obtains an advantage attributable to the existence of the trust is voidable by
the beneficiary if the beneficiary establishes that the transaction was unfair
to the beneficiary.
(e)
A transaction not concerning trust property in which the trustee engages in the
trustee’s individual capacity involves a conflict between personal and
fiduciary interests if the transaction concerns an opportunity properly
belonging to the trust.
(f)
[Reserved]
(g)
In voting shares of stock or in exercising powers of control over similar
interests in other forms of enterprise, the trustee shall act in the best
interests of the beneficiaries and shall vote to elect or appoint directors or
other managers who will manage the corporation or enterprise in the best
interests of the beneficiaries.
(h)
This section does not preclude the following transactions, if fair to the
beneficiaries:
(1)
an agreement between a trustee and a beneficiary relating to the appointment or
compensation of the trustee;
(2)
payment of reasonable compensation to the trustee;
(3)
a transaction between the trust and another trust, decedent’s estate,
guardianship, conservatorship, or other fiduciary relationship of which the
trustee is a fiduciary or in which a beneficiary has an interest;
(4)
a deposit of trust money in a regulated financial-service institution operated
by or affiliated with the trustee; or
(5)
an advance by the trustee of money for the protection of the trust.
(i)
The court may appoint a special fiduciary to make decisions with respect to any
proposed transaction that might violate this section if entered into by the
trustee.
[Source
UTC § 802]
3B:31-55 DUTY OF
IMPARTIALITY
If
a trust has two or more beneficiaries, the trustee shall act impartially in
investing, managing, and distributing the trust property, giving due regard to
the beneficiaries’ respective interests.
[Source
UTC § 803]
3B:31-56 DUTY OF
PRUDENT ADMINISTRATION
A
trustee shall administer the trust as a prudent person would, by considering
the purposes, terms, distributional requirements, and other circumstances of
the trust. In satisfying this standard, the trustee shall exercise reasonable
care, skill, and caution.
[Source
UTC § 804]
3B:31-57 COSTS OF
ADMINISTRATION
In
administering a trust, the trustee may incur only costs that are appropriate
and reasonable in relation to the trust property, the purposes of the trust,
and the skills of the trustee.
[Source
UTC § 805]
3B:31-58 DUTY TO USE
SPECIAL SKILLS
A
trustee who has special skills or expertise, or is named trustee in reliance
upon the trustee’s representation that the trustee has special skills or
expertise, has a duty to use those special skills or expertise.
[Source
UTC § 806]
3B:31-59 DELEGATION
BY TRUSTEE
(a)
A trustee may delegate ministerial, administrative and management duties and
powers that a prudent trustee of comparable skills could properly delegate
under the circumstances.
(b)
A trustee shall exercise reasonable care, skill, and caution in:
(1)
selecting an agent;
(2)
establishing in writing the scope and terms of the delegation, consistent with
the purposes and terms of the trust; and
(3)
periodically reviewing the agent’s actions in order to monitor the agent’s
performance
and compliance with the terms of the delegation.
-31-
(c)
A trustee shall provide reasonable written notice to the qualified
beneficiaries on
each
occasion upon which the trustee delegates duties pursuant to this section,
including
the
identity of the agent.
(d)
A trustee who complies with subsections (b) and (c) is not liable to the
beneficiaries or to the trust for an action of the agent to whom the function
was delegated.
(e)
In performing a delegated function, the agent shall owe to the trustee and the
beneficiaries the same duties as the fiduciary and shall be held to the same
standards as the fiduciary.
(f)
By accepting a delegation of powers or duties from the trustee of a trust that
is subject to the law of this State, an agent submits to the jurisdiction of
the courts of this State, even if the delegation agreement provides otherwise.
[Source
UTC § 807]
3B:31-60 POWERS TO
DIRECT
(a)
While a trust is revocable, the trustee may follow a direction of the settlor
that is contrary to the terms of the trust.
(b)
If the terms of a trust confer upon a person other than the settlor of a
revocable trust the power to direct certain actions of the trustee, the trustee
shall act in accordance with a written exercise of the power unless the
attempted exercise is contrary to the terms of the trust or the trustee knows
the attempted exercise would constitute a breach of a fiduciary duty that the
person holding the power owes to the beneficiaries of the trust.
(c)
The terms of a trust may confer upon a trustee or other person a power to
direct the modification or termination of the trust.
(d)
A person, other than a beneficiary, who holds a power to direct is required to
act in good faith with regard to the purposes of the trust and the interests of
the beneficiaries. The holder of a power
to direct is liable for any loss that results from breach of the holder’s
failure to act in good faith.
[Source
UTC § 808]
3B:31-61 CONTROL AND
PROTECTION OF TRUST PROPERTY
A
trustee shall take reasonable steps to take control of and protect the trust
property.
[Source
UTC § 809]
3B:31-62 RECORDKEEPING
AND IDENTIFICATION OF TRUST PROPERTY
(a)
A trustee shall keep adequate records of the administration of the trust.
(b)
A trustee shall keep trust property separate from the trustee’s own property.
(c)
Except as otherwise provided in subsection (d), a trustee shall cause the trust
property to be designated so that the interest of the trust, to the extent
feasible, appears in records maintained by a party other than a trustee or
beneficiary.
(d)
If the trustee maintains records clearly indicating the respective interests, a
trustee may invest as a whole the property of the trust with other fiduciary
accounts maintained by the trustee.
[Source
UTC § 810]
3B:31-63 DUTY TO
ENFORCE AND DEFEND CLAIMS
A
trustee shall take reasonable steps to enforce claims of the trust and to
defend claims against the trust.
[Source
UTC § 811]
3B:31-64 DUTY TO
COLLECT TRUST PROPERTY AND REDRESS BREACHES
OF TRUST
(a)
A trustee shall take reasonable steps to compel a former trustee or other
person to deliver trust property to the trustee.
(b)
A trustee shall take reasonable steps to redress a breach of trust known to the
trustee to have been committed by a former trustee.
[Source
UTC § 812]
3B:31-65 DUTY TO
DISCLOSE AND DISCRETION TO PERIODICALLY REPORT
(a)
Unless unreasonable under the circumstances, a trustee shall promptly respond
to a beneficiary’s request for information related to the administration of a
trust.
(b)
A trustee, upon request of a beneficiary, shall promptly furnish to the
beneficiary a copy of the trust instrument.
(c)
A trustee seeking the protection of Section [92(a)] of this act [U.T.C.
§905(a)] may provide the beneficiaries with a report of the trust property,
liabilities, receipts, and disbursements, including the source and amount of
the trustee’s compensation, a listing of the trust assets, and, if feasible,
their respective market values.
[Source
UTC § 813]
3B:31-66 DISCRETIONARY
POWERS
Notwithstanding
the breadth of discretion granted to a trustee in the terms of the trust,
including the use of such terms as “absolute”, “sole”, or “uncontrolled”, the
trustee shall exercise a discretionary power in good faith and in accordance
with the terms and purposes of the trust and the interests of the
beneficiaries.
[Source
UTC § 814]
3B:31-67 GENERAL
POWERS OF TRUSTEE
(a)
Except as limited by N.J.S.A. 3B:11-4.1 and other express statutory
restrictions, a trustee, without authorization by the court, may exercise:
(1)
powers conferred by the terms of the trust; or
(2)
except as limited by the terms of the trust:
(A)
all powers over the trust property which an unmarried competent
owner
has over individually owned property;
(B)
any other powers appropriate to achieve the proper investment,
management,
and distribution of the trust property; and
(C)
any other powers conferred by this Act and by Title 3B.
(b)
The exercise of a power is subject to the fiduciary duties prescribed by this
Act and by Title 3B.
[Source
UTC § 815]
3B:31-68 DISTRIBUTION
ON TERMINATION
(a)
Upon the occurrence of an event terminating or partially terminating a trust,
the trustee shall proceed expeditiously to distribute the trust property to the
persons entitled to it, subject to the right of the trustee to retain a
reasonable reserve for the payment of debts, expenses, and taxes.
(b)
Upon termination or partial termination of a trust, the trustee may mail or
deliver a proposal for distribution to all persons who have a right to object
to the proposed distribution. The proposal shall notify all persons who have a
right to object to the proposal of their right to object and that their
objection must be in writing and received by the trustee within 30 days after
the mailing or delivery of the proposal. The right of any person to object to
the proposed distribution on the basis of the kind or value of asset he or she
or another beneficiary is to receive, if not waived earlier in writing,
terminates if he or she fails to object in writing received by the trustee
within 30 days after mailing or delivery of the proposal.
[Source
UTC § 817]
ARTICLE 10
LIABILITY OF TRUSTEES AND
RIGHTS OF PERSONS DEALING WITH TRUSTEE
3B:31-69 REMEDIES
FOR BREACH OF TRUST
(a)
A violation by a trustee of a duty the trustee owes to a beneficiary is a
breach of trust.
(b)
To remedy a breach of trust that has occurred or may occur, the court may:
(1)
compel the trustee to perform the trustee's duties;
(2)
enjoin the trustee from committing a breach of trust;
(3)
compel the trustee to redress a breach of trust by paying money, restoring
property, or other means;
(4)
order a trustee to account;
(5)
appoint a special fiduciary to take possession of the trust property and
administer the trust;
(6)
suspend the trustee;
(7)
remove the trustee as provided in Section 706;
(8)
reduce or deny compensation to the trustee;
(9)
subject to Section 1012, void an act of the trustee, impose a lien or a
constructive trust on trust property, or trace trust property wrongfully
disposed of and recover the property or its proceeds; or
(10)
order any other appropriate relief.
[Source
UTC § 1001]
3B:31-70 DAMAGES FOR
BREACH OF TRUST
(a)
A trustee who commits a breach of trust is liable to the beneficiaries affected
for the greater of:
(1)
the amount required to restore the value of the trust property and trust
distributions to what they would have been had the breach not occurred; or
(2)
the profit the trustee made by reason of the breach.
(b)
If more than one trustee is liable to the beneficiaries for a breach of trust,
a trustee is entitled to contribution from the other trustee or trustees based
upon the comparative degree of culpability for the breach. However, a trustee
who committed the breach of trust in bad faith or with reckless indifference to
the purposes of the trust or the interests of the beneficiaries is not entitled
to contribution from a trustee who was not guilty of such conduct. Furthermore,
a trustee who received a benefit from the breach of trust is not entitled to
contribution from another trustee to the extent of the benefit received.
[Source
UTC § 1002]
3B:31-71 DAMAGES IN
ABSENCE OF BREACH
(a)
A trustee is accountable to an affected beneficiary for any profit made by the
trustee arising from the administration of the trust, even absent a breach of
trust, except where the interest in the transaction involved is fully disclosed
to the beneficiary and consent is freely given.
(b)
Absent a breach of trust, a trustee is not liable to a beneficiary for a loss
or depreciation in the value of trust property or for not having made a profit.
[Source
UTC § 1003]
3B:31-72 LIMITATION
OF ACTION AGAINST TRUSTEE
(a)
A beneficiary may not commence a proceeding against a trustee for breach of
trust more than six months after the date that the beneficiary or a
representative of the beneficiary was sent a report that adequately disclosed
the existence of a potential claim for breach of trust and informed the
beneficiary of the time allowed for commencing a proceeding.
(b)
A report adequately discloses the existence of a potential claim for breach of
trust if it provides sufficient information so that the beneficiary or
representative knows of the potential claim or should have inquired into its
existence.
(c)
If subsection (a) does not apply, a judicial proceeding by a beneficiary
against a trustee for breach of trust must be commenced within five years after
the first to occur of:
(1)
the removal, resignation, or death of the trustee;
(2)
the termination of the beneficiary's interest in the trust; or
(d)
For purposes of subsection (a), a beneficiary is deemed to have been sent a
report if:
(1)
in the case of a beneficiary having capacity, it is sent to the beneficiary; or
(2)
in the case of a beneficiary who under Article 3 may be represented and bound
by another person, if it is received by his representative.
(e)
this section does not preclude an action to recover for fraud or
misrepresentation related to the report.
[Source
UTC § 1005]
3B:31-73 RELIANCE ON
TRUST INSTRUMENT
A
trustee who acts in reasonable reliance on the terms of the trust as expressed
in the trust instrument is not liable to a beneficiary for a breach of trust to
the extent the breach resulted from the reliance.
[Source
UTC § 1006]
3B:31-74 EVENT
AFFECTING ADMINISTRATION OR DISTRIBUTION
If
the happening of an event, including marriage, divorce, performance of
educational requirements, or death, affects the administration or distribution
of a trust, a trustee who has exercised reasonable care to ascertain the
happening of the event is not liable for a loss resulting from the trustee’s
lack of knowledge.
[Source
UTC § 1007]
3B:31-75 EXCULPATION
OF TRUSTEE
(a)
A term of a trust relieving a trustee of liability for breach of trust is
unenforceable to the extent that it:
(1)
relieves the trustee of liability for breach of trust committed in bad faith or
with reckless indifference to the purposes of the trust or the interests of the
beneficiaries; or
(2)
was inserted as the result of an abuse by the trustee of a fiduciary or
confidential relationship to the settlor.
(b)
An exculpatory term drafted or caused to be drafted by the trustee is invalid
as an abuse of a fiduciary or confidential relationship unless the trustee
proves that the exculpatory term is fair under the circumstances and that its
existence and contents were adequately communicated to the settlor.
[Source
UTC § 1008]
3B:31-76 BENEFICIARY’S
CONSENT, RELEASE, OR RATIFICATION
A
trustee is not liable to a beneficiary for breach of trust if the beneficiary,
while having capacity, consented to the conduct constituting the breach,
released the trustee from liability for the breach, or ratified the transaction
constituting the breach, unless:
(1)
the consent, release, or ratification of the beneficiary was induced by
improper conduct of the trustee; or
(2)
at the time of the consent, release, or ratification, the beneficiary did not
know of the beneficiary’s rights or of the material facts relating to the
breach.
[Source
UTC § 1009]
3B:31-77 LIMITATION
ON PERSONAL LIABILITY OF TRUSTEE
(a)
Except as otherwise provided in the contract, a trustee is not personally
liable on a contract properly entered into in the trustee’s fiduciary capacity
in the course of administering the trust if the trustee in the contract
disclosed the fiduciary capacity.
(b)
A trustee is personally liable for torts committed in the course of
administering a trust, or for obligations arising from ownership or control of
trust property, including liability for violation of environmental law, only if
the trustee is personally at fault.
(c)
A claim based on a contract entered into by a trustee in the trustee’s
fiduciary capacity, on an obligation arising from ownership or control of trust
property, or on a tort committed in the course of administering a trust, may be
asserted in a judicial proceeding against the trustee in the trustee’s
fiduciary capacity, whether or not the trustee is personally liable for the
claim.
[Source
UTC § 1010]
3B:31-78 INTEREST AS
GENERAL PARTNER
(a)
Except as otherwise provided in subsection (c) or unless personal liability is
imposed in the contract, a trustee who holds an interest as a general partner
in a general or limited partnership is not personally liable on a contract
entered into by the partnership after the trust's acquisition of the interest
if the fiduciary capacity was disclosed in the contract or in a statement
previously filed pursuant to the New Jersey Uniform Partnership Act (1996) or
the Revised New Jersey Uniform Limited Partnership Act of 1976.
(b)
Except as otherwise provided in subsection (c), a trustee who holds an interest
as a general partner is not personally liable for torts committed by the
partnership or for obligations arising from ownership or control of the
interest unless the trustee is personally at fault.
(c)
The immunity provided by this section does not apply if an interest in the
partnership is held by the trustee in a capacity other than that of trustee or
is held by the trustee's spouse or one or more of the trustee's descendants,
siblings, or parents, or the spouse of any of them.
(d)
If the trustee of a revocable trust holds an interest as a general partner, the
settlor is personally liable for contracts and other obligations of the
partnership as if the settlor were a general partner.
[Source
UTC § 1011]
3B:31-79 CERTIFICATION
OF TRUST
(a)
Instead of furnishing a copy of the trust instrument to a person other than a
beneficiary, the trustee may furnish to the person a certification of trust
containing the following information:
(1)
that the trust exists and the date the trust instrument was executed;
(2)
the identity of the settlor;
(3)
the identity and address of the currently acting trustee;
(4)
the powers of the trustee;
(5)
the revocability or irrevocability of the trust and the identity of any person
holding a power to revoke the trust;
(6)
the authority of cotrustees to sign and whether all or less than all are
required in order to exercise powers of the trustee; and
(7)
the name in which title to trust property may be taken.
(b)
A certification of trust shall be signed by all persons identified as currently
acting as trustees.
(c)
A certification of trust must state that the trust has not been revoked,
modified, or amended in any manner that would cause the representations
contained in the certification of trust to be incorrect.
(d)
A certification of trust need not contain the dispositive terms of a trust.
(e)
A recipient of a certification of trust may require the trustee to furnish
copies of those excerpts from the original trust instrument and later
amendments which designate the trustee and confer upon the trustee the power to
act in the pending transaction.
(f)
A person who acts in reliance upon a certification of trust without knowledge
that the representations contained therein are incorrect is not liable to any
person for so acting and may assume without inquiry the existence of the facts
contained in the certification.
Knowledge of the terms of the trust may not be inferred solely from the
fact that a copy of all or part of the trust instrument is held by the person
relying upon the certification.
(h)
A person making a demand for the trust instrument in addition to a
certification of trust or excerpts is liable for damages if the court
determines that the person did not act in good faith in demanding the trust
instrument.
(i)
This section does not limit the right of a person to obtain a copy of the trust
instrument in a judicial proceeding concerning the trust.
[Source
UTC § 1013]
ARTICLE 11
MISCELLANEOUS PROVISIONS
3B:31-80 ELECTRONIC
RECORDS AND SIGNATURES
The
provisions of this act governing the legal effect, validity, or enforceability
of electronic records or electronic signatures, and of contracts formed or
performed with the use of such records or signatures, conform to the
requirements of Section 102 of the Electronic Signatures in Global and National
Commerce Act (15 U.S.C. Section 7002) and supersede, modify, and limit the
requirements of the Electronic Signatures in Global and National Commerce Act.
[Source
UTC § 1102]
3B:31-81 SEVERABILITY
CLAUSE
If
any provision of this act or its application to any person or circumstances is
held invalid, the invalidity does not affect other provisions or applications
of this act which can be given effect without the invalid provision or
application, and to this end the provisions of this act are severable.
[Source
UTC § 1103]
3B:31-82 EFFECTIVE
DATE
Effective
Date. This act shall take effect on the 180th day following enactment.
[Source
UTC § 1104]
3B:31-83 REPEALER
The
following sections are repealed:
N.J.S.
3B:11-5 through 3B:11-7.
[Source
UTC § 1105]
3B:31-84 APPLICATION
TO EXISTING RELATIONSHIPS
a.
Except as otherwise provided in this act:
(1)
this act applies to all trusts created before, on, or after its effective date;
(2)
this act applies to all judicial proceedings concerning trusts commenced on or
after its effective date;
(3)
this act applies to judicial proceedings concerning trusts commenced before its
effective date unless the court finds that application of a particular
provision of this act would substantially interfere with the effective conduct
of the judicial proceedings or prejudice the rights of the parties, in which
case the particular provision of this act does not apply and the superseded law
applies;
(4)
any rule of construction or presumption provided in this act applies to trust
instruments executed before the effective date of the act unless there is a
clear indication of a contrary intent in the terms of the trust; and
(5)
an act done before the effective date is not affected by this act.
(b)
If a right is acquired, extinguished, or barred upon the expiration of a
prescribed period that has commenced to run under any other statute before the
effective date of the act, that statute continues to apply to the right even if
that statute has been repealed or superseded by this act.
[Source
UTC § 1106]
