THE PENNSYLVANIA UNIFORM TRUST ACT:
New Rules for the Administration of Pennsylvania Trusts
By Robert R. Church, Esq.
In 2006 the Pennsylvania General Assembly made very significant changes to the law of trusts in Pennsylvania. The Pennsylvania Uniform Trust Act (PA-UTA) is generally effective from November 6, 2006 and applies to Pennsylvania trusts executed both before and after the effective date. The many new provisions contained within the PA-UTA are the most significant changes made to the law of trusts in Pennsylvania in the last 30 years. These changes are generally good news for both beneficiaries and trustees.
Pennsylvania now has a comprehensive statutory law that provides clear guidance to trustees, beneficiaries and attorneys. These new rules apply equally to trusts created during lifetime (by trust instrument) or at death (by Will). The new rules should eliminate uncertainties and disputes over many issues that can arise in the course of trust administration, including investment decisions, fees and expenses, and the ability to modify the trust provisions after the trust has otherwise become irrevocable.
Although the following is not a complete description of all changes contained in this new law, listed below are several important and helpful new provisions:
A. Living Trusts: The rules for interpreting or challenging a revocable trust (sometimes called a living trust) are now the same as prior law for the interpretation and contesting of a decedent’s Will.
B. Trust Amendment: All trust documents are now presumed to be revocable or modifiable by the creator, unless explicitly stated otherwise in the governing instrument. This is the opposite of prior law.
C. Beneficiary Notifications: Trustees now have an affirmative obligation to communicate with the beneficiaries, at least annually, and to respond to their requests for information concerning the trust. Within 30 days after the death of the settlor (i.e., the creator of the trust), all primary income and remainder beneficiaries are required to receive a one-time written notification from the trustee, to inform them of their rights in the trust, as beneficiaries. The beneficiaries can execute written waivers of their notification rights. The one-time notices must also set forth the beneficiary’s right to request an annual statement setting forth the trust’s current assets, liabilities, receipts and disbursements. However, the beneficiaries need not be given a copy of the trust document unless they specifically request it. During the settlor’s lifetime beneficiaries will not be entitled to receive such notices unless the settlor is judicially determined to be incapacitated. There was also a two-year phase-in period until November 6, 2008 for trusts that were irrevocable on the date of enactment.
D. Perpetual Trusts: For trust interests created on or after January 1, 2007, Pennsylvania now permits such trusts to continue forever, unless terminated earlier according to the provisions of the governing instrument. This means that persons who desire to establish very long-term or generation-skipping trusts to obtain favorable tax and asset protection benefits can now do so in Pennsylvania.
E. Modification or Termination of Irrevocable Trusts: The PA-UTA now contains important and useful provisions that will permit, under many circumstances, the modification or early termination and distribution of trusts that are otherwise irrevocable. In most cases, it will be necessary to obtain the consent of all adult beneficiaries and the trustee to make such an early termination or modification. The Orphans’ Court Division now has increased discretionary powers to modify or terminate irrevocable trusts under certain conditions.
F. Non-Judicial Release of Trustees: Under prior law it was often necessary for the trustee to file a formal fiduciary accounting with the Orphans’ Court Division in order to obtain a discharge and release from fiduciary responsibility, either every few years or upon final termination of the trust. Under the PA-UTA such judicial procedures are likely to become less frequent because it is now easier for a trustee to rely upon a release document executed by all adult beneficiaries, even though some beneficiaries may be minors or otherwise unable to sign a release document.
G. Five Year Waiver: Under the PA-UTA, a beneficiary who receives regular statements from a trustee, at least annually, will have a period of five years within which to question or challenge any items or transactions shown on the statements. Under this new procedure the trustee’s statement must include a notification informing the beneficiary of the five year objection period. After a period of five years and the delivery of a second notice giving the beneficiary a final period of six months, the beneficiary will no longer have the right to object to the transactions on the statements, even if no release document is ever signed by the beneficiary, or if no court adjudication takes place.
Robert R. Church, Esq.