Delaware Trust Act 2020
House Bill 334 was passed by both houses and approved by Governor Carney on August 6, 2020.
- Section 3343, Trust Act 2020 revises new Section 3343, which allows a person responsible for changing fiduciaries of a trust administered under Delaware law to divide responsibilities and allocate duties and fiduciary risk among multiple trustees. The 2020 act clarifies the circumstances when the provisions of the section are available, to clarify the connection between Sections 3343 and 3313A of Title 12 of the Delaware Code, and to incorporate additional protections for trustees when a trustee’s duties and powers will be modified in accordance with the statute. (For example. if you hold the power to remove and replace a trustee, you can now leverage this to make your trust work better for you. For example, you may like your corporate trustee and the expertise that corporate trustee brings. However, you may not like how the corporate trustee exercises its discretion over distributions because you feel the corporate trustee is too far removed from the beneficiary’s life. Therefore, you are now able to appoint an additional co-trustee and grant that new trustee the sole power over discretionary distributions, while still retaining the corporate trustee for trust accounting, taxes filing, and ensuring fiduciary excellence.)
- Section 3585, which is the statute of repose that places a limit on the time that a party may initiate a claim against a trustee. Trust Act 2020 revises Section 3585 to make the Section expressly applicable to those outgoing trustees by modifying subsection (a)(2) to provide that the Section is equally applicable to a trustee who is resigning, is being removed, or is ceasing to serve; provided that the outgoing trustee must actually transfer the trust property to its successor within a reasonable period of time following the expiration of the 120-day period. Subsection (e) was also revised to expressly provide that Section 3585 does not preclude an action related to a trustee’s administration of assets during or following any period provided in the Section. Consequently, it’s now clear an outgoing trustee may avail itself of the 120-day limitations period even if it will continue to serve for a reasonable period of time after the expiration of the 120-day period, but the outgoing trustee will, of course, remain responsible for surchargable misconduct that occurs while it remains in office. (This statute only comes into effect when a notice is sent to a client. It emphasizes the significance for trust beneficiaries to review and examine all of their statements, and if there are any issues to bring them forth immediately rather than waiting until the business is moving on from the trustee.)
- Section 3338, allows trustees and beneficiaries to participate in Non-Judicial Settlement Agreements in order to achieve certain modifications to trust agreements. Trust Act 2020 modifies Section 3338 to (i) clarify the persons who constitute “trust beneficiaries,” and are therefore included among the trust’s interested persons for purposes of certain agreements, and (ii) prohibit a trustor from representing and binding any beneficiary other than himself or herself for purposes of certain Non-Judicial Settlement Agreements. (This allows a Delaware trustee to clarify who the trust beneficiaries are and determine who should and should not be participating in the agreement. Because NJSAs are a commonly used practice in the industry, it is important to received continued guidance and updates on this section.)
- Section 3342, which is the statute that allows the modification of trust by consent of the Grantor. Trust Act 2020 revises subsection (a) of Section 3342 to prohibit a trustor, a guardian or an agent under a power of attorney from representing and binding any beneficiary other than the trustor unless the trustor or some other person acting on the trustor’s behalf confirms that the trustor’s transfer in trust constitutes an incomplete gift for federal gift tax purposes, notwithstanding any provision of the governing instrument or applicable law that would otherwise provide that the trustor may represent such beneficiary. (Under Delaware Law a Delaware irrevocable trust can still be modified by the settlor if the settlor is still living. This provides both the Grantor and trustee flexibility to adjust language in the document if circumstances call for a change in how the trust is written.)
The specific updates listed above are the items that as a Trust Officer are interesting and helpful regarding performing the roles and responsibilities of my job. These are welcomed changes, and all add clarity to each section of the act. This is helpful when we encounter complex situations that require creative solutions for our clients. The updates further strengthen consideration to utilize Delaware law and potentially move existing trusts to Delaware. Please feel free to contact me regarding any of these updates.
Christopher Carr, Vice President and Trust Officer
The posts expressed are views of FSTC and are not intended as advice or recommendations. For informational purposes only. FSTC does not offer tax or legal advice, professional counsel should be sought for tax or legal advice.