The Uniform Trust Code

When a person transfers property to another person “in trust” for beneficiaries or for a legally-acknowledged beneficial purpose, a “trust” is formed. The recipient of the property is called a “trustee.” The person who transfers property to the trustee “in trust” is usually called the settlor. Most trusts have identifiable beneficiaries. There are, however, charitable and honorary trusts, which do not have actual beneficiaries. They have a beneficial purpose that substitutes for named or identifiable beneficiaries. Trusts are recognized in the law for many purposes. Trusts are commonly used as part of an individual's estate plan, to avoid probate and (with some trusts) to obtain favorable tax consequences.

A trustee is a fiduciary, sometimes described as the utmost fiduciary. A fiduciary has enforceable obligations to the settler, beneficiaries or beneficial purpose. There are many kinds of fiduciary relationships in the law. The vulnerability of the beneficiaries or the beneficial interest is the reason that the law imposes special obligations on the trustee as a fiduciary.

The law governing the trust relationship is fundamentally American common law, best represented in the Restatement of the Law of Trusts, 2nd and the subsequent, still being drafted, Restatement of the Law of Trusts, 3rd. The restatements come from the American Law Institute. There are also statutes in most states that govern aspects of the trust relationship. A handful of states have attempted a codification of the law of trusts. California is a leading example.

In the year 2000, however, the Uniform Law Commissioners have promulgated the first truly national codification of the law of trusts with the Uniform Trust Code. It draws from the common law sources, including the Restatements. The existing statutory law is also a source. The objective is a codification of existing law, but there are elements of law reform, also. The reforms tune trust law to modern needs. The Uniform Code provides fundamental rules that apply to all voluntary trusts.

However, the Uniform Trust Code (UTC) does not try to incorporate detailed rules for every conceivable kind of trust, nor does it incorporate all of the kinds of trusts there are. It does not contain statutory rules that are already governing trusts in many jurisdictions, and that are working just fine. It does not displace, for example, the Uniform Prudent Investor Act or the Uniform Custodial Trust Act. What the Uniform Trust Code contains is a set of basic default rules that fairly, consistently and clearly govern voluntary trusts. It is a default statute for the most part, because the terms of a trust instrument will govern even if inconsistent with the statutory rules.

If you would like to read the full UTC please go to:

http://www.utcproject.org/utc/DesktopDefault.aspx?tabindex=1&tabid=31

The bottom line to all of this is the Uniform Trust Code is just a recommendation for people drafting trust agreements. There is no binding federal law that would require usage. This is good news for those of us who like to draft our own trust agreements with creative language to protect our assets.