67 The Alabama Lawyer 358 (2006). The Alabama Trust Code.

• Author: BY ROBERT L. LOFTIN

The Alabama Lawyer

2006.

67 The Alabama Lawyer 358 (2006).

The Alabama Trust Code

The Alabama Trust Code BY ROBERT L. LOFTINIn February, Alabama became the 16th state to enact the Uniform Trust Code. The Trust Code states the law relating to express trusts, which are distinguished from what are known as resulting or constructive trusts, remedial devices imposed by the courts and which are excluded from the Trust Code. While much of the Trust Code codifies the common law, it does make some significant changes.

Default Rules

Much of American trust law consists of rules subject to override by the terms of the trust. Prior to the Trust Code , however, neither the Restatement, treatise writers nor state legislatures had attempted to describe the principles of law that are not subject to the settlor's control. The Alabama Trust Code collects these principles in § 19-3B-105(b). Included are the requirements for creating a trust; the requirement that a trustee act in good faith and in accordance with the trust purposes; the power of the court to take certain actions, such as to remove a trustee, to modify or terminate a trust on prescribed grounds and to specify a trustee's compensation; the effect of a spendthrift provision and the rights of certain creditors and assignees to reach a trust; and the rights of third parties in their dealings with the trustee

Procedural Rules

The Trust Code specifies numerous procedural rules for administering a trust, all of which are subject to override in the terms of the trust. Among the procedural issues addressed are the method for transferring a trust's principal place of administration to or from another country or American state (§ 19-3B-108); the method for revoking or amending a revocable trust (§ 19-3B-602); the requirements for declining or accepting appointment as trustee (§ 19-3B-701); the division of responsibilities among co-trustees (§ 19-3B-703); the procedure for appointing a successor trustee (§ 19-3B704); and the requirements for an effective trustee resignation (§ 19-3B-705).

The Trust Code generally prefers the honoring of intent over required formalities; consequently, absent specific provision in the terms of the trust, a trustee may accept office (§ 19-3B-701) or a settlor may revoke or amend a revocable trust by any method indicating the necessary intent, provided, however, that a written revocable trust may only be revoked by a written instrument delivered to the trustee (§ 19-3B-602(c)(2)(B)). Under § 19-3B-705, a trustee may resign by giving notice to the "qualified beneficiaries" ( defined in § 19-3B-103(14)).

While the court is always available, a trustee may transfer the principal place of administration upon notice to the qualified beneficiaries (§ 19-3B-108); absent a successor appointment in the terms of the trust, a successor trustee may be appointed upon unanimous agreement of the qualified beneficiaries (§ 19-3B-704).

Co-Trustees

While appointment of co-trustees is common, the situations under which co-trustees are appointed are so varied that designing default rules is difficult. Given this difficulty, specifying the powers, duties and divisions of responsibilities among co-trustees is among the more important issues to address in drafting. Among the matters the trust instrument should address is "Would the settlor have preferred that the co-trustees act by majority or unanimity?" Section 19-3B-703(a) opts for efficiency by allowing the co-trustees to act by majority.

"To what extent did the settlor intend to allow co-trustees to delegate responsibilities to each other?"

Section 19-3B-703(e) allows the delegation of the performance of a function by one co-trustee to another co-trustee unless the terms of the trust expressly require that the function be performed jointly by the co-trustees - an objective standard. The Alabama Trust Code differs from the Uniform Trust Code, which prohibits the delegation of the performance of a function that the "settlor reasonably expected the trustees to perform jointly" - a subjective standard. This provision specifically contemplates the delegation of certain functions to a co-trustee who is more appropriate or able to perform the task, such as the delegation of investment management or record keeping duties to a professional who is the co-trustee.

"To what extent should a non-participating co-trustee be liable for another trustee's breach?"

Section 19-3B-703(f) generally immunizes a nonparticipating trustee from liability. However, the Code also assumes that the settlor did not intend for the trustee to totally neglect his or her duties-each trustee must exercise reasonable care to prevent a co-trustee from committing a serious breach of trust and compel a co-trustee to redress a serious breach of trust (§ 19-3B-703(g)).

Principal Place of Administration

As trust administration has become more complex, determining a trust's principal place of administration has become more difficult. Co-trustees may be located in different states, or a corporate trustee's personal trust officers may be located in one state, its investment division in another and its operations facilities somewhere else. Also, a variety of non-trustees, such as advisors and trust protectors, may play a role in the trust's administration.

The Trust Code does not and probably cannot resolve the difficult cases. For cases in which determining a trust's principal place of administration is important, settlors are encouraged to address the issue in the terms of the trust. Under § 19-3B-108(a), a provision in the trust terms designating the principal place of administration is valid and controlling as long as a trustee's principal place of business is located in or a trustee is a resident of the designated jurisdiction, or all or part of the trust's administration occurs in the designated place.

Frequently it becomes necessary to change a trust's principal place of administration. While this issue ideally should be addressed in the terms of the trust, § 19-3B-108(b)-(f) specifies the procedures for transfer. The transfer must facilitate the trust's administration, and the trustee must inform the qualified beneficiaries of the transfer at least 30 days in advance.

Alabama includes a provision (§ 193B-108(g)) which provides that unless otherwise designated in the trust instrument, the principal place of administration of a trust is the usual place where the day-to-day activity of the trust is...