Major Changes to Connecticut Trust Law
New Connecticut Uniform Trust Code Enacted
In 2019 Connecticut passed legislation that went into effect on January 1, 2020 completely revamping the laws governing trusts in Connecticut. The Connecticut Uniform Trust Code (CUTC) modernizes Connecticut trust law and establishes a foundation of rules for creating, administering, and terminating trusts. Most rules in the CUTC are default rules that can be changed according to the terms of the trust, but others are mandatory. It is important to note that most of the provisions of this new legislation apply to all trusts regardless of whether they were signed before or after January 1, 2020.
There are four acts included in the Connecticut Uniform Trust Code. These are: The Uniform Trust Code, The Expanded Rule Against Perpetuities, The Uniform Directed Trust Act, and The Qualified Dispositions in Trust Act. We have highlighted some of the major changes included in each act below.
Uniform Trust Code - Mandatory Notice Provisions
One of the most significant mandatory provisions of the CUTC is the new requirement for notice to beneficiaries for trusts that became irrevocable after January 1, 2020. The Trustee must notify any “Qualified Beneficiary” that has reached the age of twenty-five (25) of: the trust’s existence; who is serving as trustee; and their right to request a trustee’s report. The trustee’s report shall include a listing of the trust assets, distributions from the trust, and expenses paid by the trust. Depending on the terms of the trust, this mandatory notice provision can have the effect of requiring the Trustee to notify children, grandchildren and more remote descendants of the existence of a trust and of the right to request a trustee’s report that would disclose the assets held in the trust. In light of this provision, some people may want to revise their trusts to limit the number of descendants who would qualify for this mandatory notice provision.
Modification or Termination of Irrevocable Trusts
The CUTC offers more opportunities to modify or terminate trusts than were previously available in Connecticut. There are five ways to modify existing trusts under this new law: changed circumstances, consent of all or most beneficiaries, correcting mistakes, tax purposes, and through consent of the creator of the trust and all beneficiaries. In most cases, there would be a proceeding in probate court to effectuate the modification or termination of the trust.
The CUTC also creates an easier away to terminate smaller inter vivos trusts. If an inter vivos trust contains assets that are valued below $200,000 termination does not need to be approved by a court. The trustee must give 30 days’ notice to the beneficiaries and then must distribute the property in a manner that is consistent with the trust’s purposes. It is necessary to bring a proceeding in probate court to terminate trusts with assets in excess of $200,000. The judge would determine the distribution of the trust property after considering the material purposes of the trust.
The Uniform Directed Trust Act is also part of the new Connecticut Uniform Trust Code. This allows for the creation of a new trust called a Directed Trust. With a Directed Trust, the person creating the trust can delegate the trustee’s powers to perform certain functions among various people. For example, the person creating the trust can appoint one person to oversee the trust’s investments and another person to oversee distributions to beneficiaries. This can be particularly helpful when the trust property includes assets other than marketable securities such as a closely held business or real estate.
Domestic Asset Protection Trusts
The Connecticut Qualified Dispositions in Trust Act is also part of the new Connecticut Uniform Trust Code. This Act creates a new type of trust available in Connecticut, which is the Domestic Asset Protection Trust (DAPT). A DAPT allows the creator of the trust to transfer his or her own assets to the trust and to be a beneficiary of the trust while also protecting the trust assets from his or her creditors. The DAPT can be an effective asset protection vehicle. However, while there are many benefits to DAPTs, there are also complex rules surrounding the creation and implementation of these trusts. There are also exceptions to the asset protection allowed under this new law. Each person’s specific scenario must be evaluated to determine if a DAPT would be an effective planning technique.
Rule Against Perpetuities Extension
Another significant provision included in the CUTC is an expanded Rule Against Perpetuities, which governs how long irrevocable trusts are allowed to last. The new CUTC allows trusts made irrevocable on or after January 1, 2020, to last for 800 years. This new law creates the opportunity for “dynasty” trusts that can last for generations. Prior to the CUTC, multigenerational trusts in Connecticut were only allowed to continue roughly 90 years after creation.
The summaries above provide a snapshot of a few of the major changes to trust law ushered in by the Connecticut Uniform Trust Code. We recommend that you contact us so that we can review your estate plan to determine if changes are needed in light of the new CUTC.