This article originally appeared in the December 2019 issue of the Rockford Chamber of Commerce VOICE.
Amidst the business of the Holiday season, a sea change is approaching for Illinois estate plans, particularly those utilizing trusts. The Illinois Trust Code, passed on July 12, 2019, will become the law of the Land of Lincoln on January 1, 2020. Individuals utilizing a trust as part of their estate plan are well-advised to contact their estate planning attorneys to discuss whether changes are appropriate to their plans considering the new Illinois Trust Code.
Many of the significant parts of the Illinois Trust Code are effective immediately on January 1. However, some of the changes to trustee duties and obligations pertain only to trusts experiencing a trustee change after January 1, 2020. In some cases, trustees of trusts becoming irrevocable prior to January 1, 2020 are ‘grandfathered’ under the prior Illinois law.
While the clear intent of the Illinois Trust Code is to bring the State of Illinois more in line with uniform, national standards (Illinois is the 34th state to adopt this legislation), the new Code does effect significant changes upon trusts that will need to be taken into account by attorneys, corporate fiduciaries, accountants, and estate planners themselves. Without endeavoring to cover all of the changes in the new Code, the following are a few items to note:
- The new Code imposes notice and disclosure requirements on trustees, including a requirement for accountings and notices to beneficiaries upon substantive changes in the trust’s status, such as a change from revocability to irrevocability. Of particular note, the Code expands the definition of who qualifies as a beneficiary entitled to these notices and deliveries to include those who could, someday, receive a distribution from the trust. While some of these notice and delivery requirements can be waived in the trust instrument itself, not all of them can. Whether they should appropriately be waived is certainly something to discuss with your estate planning counsel.
- Of note to corporate trustees, the new Code limits the extent to which a creator of a trust can excuse a trustee from liability. It places a presumption of invalidity on a trustee who has specifically asked for a limitation of liability, unless that trustee can prove the limitation clause is both fair AND that the limitation of liability was clearly communicated and explained to the creator of the trust.
- The new Code retains the ability of a trust creator to limit the powers available to a trustee, which emphasizes the importance of a trustee’s careful review of the trust instrument prior to accepting the trustee position.
- The new Code broadens the ability of courts to modify the terms of a trust to better effectuate the creator’s intent or deal with changed circumstances, which will likely lead to a sigh of relief from estate planning attorneys in the region. However, the Code removes one significant tool from an estate planning attorney’s belt. Non-Judicial Settlement Agreements can no longer be used for purposes other than the interpretation of a trust, modification of a trust’s administrative terms, or to change the governing law of a trust or related to the resolution of disputes. If a change unrelated to those items is desired, the parties must obtain court approval.
The new Illinois Trust Code will likely induce its share of growing pains just like any change in the law. However, the Code is a progressive step forward for uniformity of trust laws in the United States, which can ultimately lead to decreased administration costs, and corresponding access improvements for consumers. As the clock turns to 2020, a discussion regarding the new Illinois Trust Code is worth having with your estate planning team.