Credit Unions in 10 States Need to be Aware of Uniform Trust Code as Code Attempts to Simplify States' Muddled Trust Laws

CHICAGO – Credit unions in 10 states are in the midst of a newly-enacted code that updates trust laws and adds sometimes controversial disclosures, but the model still has the flexibility to be tweaked. The Uniform Trust Code (UTC) was drafted and adopted by the National Conference of Commissioners on Uniform State Laws (NCCUSL). It is a default statute, containing a set of basic rules on the creation of trusts, representation, day-to-day administration and their modification and termination. Since 2000, the year UTC was adopted, 10 states have enacted the Code – Kansas, Wyoming, Nebraska, New Mexico, District of Columbia, Utah, Maine, Tennessee, New Hampshire and Missouri. Another 30 are expected to introduce UTC legislation next year, said Michelle Clayton, NCCUSL general counsel. Formed in 1892, NCCUSL comprises more than 300 lawyers, judges, and law professors, appointed by the states as well as the District of Columbia, Puerto Rico, and the U.S. Virgin Islands to draft proposals for uniform and model laws and work toward their enactment in their legislatures. For credit unions and CUSOs that offer trust services to their members, the UTC can mean more leeway for the person who creates the trust. “With only limited exceptions, anyone who creates a trust may spell out in the trust’s terms how the trust is to be administered and distributed,” Clayton said. “The exceptions include the requirements for creating a trust, the duty of a trustee to act in good faith, and the requirement that a trust and its terms be for the benefit of its beneficiaries.” Maine recently updated its UTC and for members that have trust accounts, education is paramount, said Dan Duff, certified financial planner and a branch manager of the Raymond James & Associates office in Millinocket, Maine. “With the implementation of UTC, we educate those members that have significant assets who may be considering a trust to not forget to fund it,” Duff said. “Many times, someone will go to an attorney, have it drawn up but not fund it. That’s just like having a safety deposit box with no contents.” Indeed, according to some industry experts, up to 75% of living trusts are put together incorrectly. Generally, an estate’s assets must fund the trust, so everything must be re-titled to the plan’s name. Any assets not titled to a living trust are vulnerable to a cumbersome probate process. Unfortunately, some attorneys don’t communicate this vital step and leave it up to their clients to follow through with neglectful results. Duff said over the past year, members have expressed interest in trust accounts and the UTC will go a long way in how a revocable or living trust will work for them. “We just received an update from our attorney,” Duff said. “We’re working hard to publicize it, educate clients and members.” Many individuals today use the revocable trust as their primary estate-planning document to avoid the procedural formalities and court supervision involved in probate, Clayton said, adding it is one of the main thrusts of UTC. Still, keeping in mind that the UTC is a model law and that states still have the leeway to make modification, is not going to make the due diligence job of knowing each state’s respective trust laws any easier, said Neil Archibald, corporate counsel and chief compliance officer for MEMBERS Trust Co., the credit union industry’s first nationally-chartered trust company. “The word `uniform’ is a misnomer. There will be some provisions that are uniform across the board, but there will still be nuances,” Archibald said. “This is not a federal issue but it is an experiment in state democracy. State legislatures will have a say in what will be struck out or added.” Archibald also said “the disclosures under UTC may enable more people to know what’s going on with the trust – which can lead to family squabbles.” NCUA has issued a number of opinion letters on revocable or “living” trusts as of late. As recent as June, GFA Federal Credit Union in Gardner, Mass. wrote to NCUA seeking clarification on the extent of NCUA share insurance coverage for funds held in two accounts established by a member in connection with a living trust in which the account owner’s son and daughter were the beneficiaries. NCUA wrote back that the interests of the son and the daughter are each insured up to $100,000, separate from any individual accounts of the member or the beneficiaries, for a total of up to $200,000. Last December, Deer Valley Credit Union in Phoenix also sought clarification on the amount of coverage involving a living trust. Ironically, Arizona Gov. Janet Napolitano signed UTC into law in May 2003 but after a “huge outcry” from the estate planning community, it was repealed in the last legislation session, said Paul Cruikshank, general counsel for the Arizona Credit Union System. “There were a number of issues of concern (from the estate planning community) involving disclosures and responsibilities,” Cruikshank said. “UTC was quite frankly knocked out this year.” Archibald said when there’s a repeal of a law as was the case in Arizona, “rest assured it’s a hot-button issue.” Meanwhile, Clayton said the use of trusts, both in family estate planning and commercial transactions, has increased dramatically in recent years and the UTC, in whatever form states adopt it, can be beneficial in the long run. “There has been a rise in the number of day-to-day questions involving trusts and the recognition that trust law in many states is quite thin,” she said. [email protected]