Navigating the New Kansas Uniform Trust Code: Familiar and Unfamiliar Waters
| Publication year | 2002 |
| Pages | 34-42 |
| Citation | Vol. 71 No. 10 Pg. 34-42 |
71 J. Kan. Bar Assn. 10, 34-42 (2002). Navigating the New Kansas Uniform Trust Code: Familiar and Unfamiliar Waters
71 J. Kan. Bar Ass'n, November/December 2002 34-42 (2002)
I. Introduction
The new Kansas Uniform Trust Code ("Code") is effective January 1, 2003. The Kansas Uniform Trust Code is the Kansas version of the Uniform Trust Code ("UTC") adopted by the National Conference of Commissioners on Uniform State Laws as edited and modified by recommendation of the Probate Law Advisory Committee of the Kansas Judicial Council and the Kansas Judicial Council in cooperation with the Kansas Bar Association and the Kansas Bankers Association, Trust Division.
The new Kansas Uniform Trust Code recognizes the greater utilization of trusts and the need to establish Kansas law in order to facilitate the use and administration of national and international trusts. Although the Code establishes several rules that are mandatory, it is otherwise a default code that a settlor may override.
The Code, as part of a uniform code, intends to provide statutory guidance where provisions are absent in trust documents, to provide guidance to trustees in the administration of trusts, to provide rights to the beneficiaries of trusts and to provide greater uniformity across multiple jurisdictions. The scope of the Code is to apply to express trusts, both charitable and non-charitable, and those created pursuant to statute, judgment or decree that requires the trust to be administered in the manner of an express trust.[1] Notwithstanding any provisions of the Code to the contrary, any trust created by will and admitted to probate shall be subject to the requirements of Chapter 59 of the Kansas Statutes Annotated (K.S.A.)[2] The Code's provisions are supplemented by the common law of trusts and principles of equity.[3]
The Kansas Uniform Trust Code is divided into 11 articles. The Kansas Revisor of Statutes has assigned section numbers for these articles that correspond with the section numbers of the Uniform Trust Code under new chapter number 58a within the Kansas Statutes Annotated. Within this article, the sections of the Kansas UTC will be cited by section number rather than the full K.S.A. citation. For example, K.S.A. 58a-101 corresponds with Section 101 of the UTC and will be cited as such.
The first article of the Code sets forth the definitions relevant to understanding the Code and clarifies the Code as a default law with mandatory provisions. Additionally this first article addresses governing law and principal place of administration issues. It also introduces the concept of nonjudicial settlement agreements in matters involving a trust and in a modified way, attempts to align trust law in Kansas with the settlement agreement concept adopted by Kansas many years ago in the probate context.
Article 2 addresses judicial proceedings involving trust issues. Article 3 addresses the representation of beneficiaries and other interested persons and introduces virtual representation while recognizing the ability of the court or trustee to appoint a representative. Article 4 outlines the requirements for creating, modifying vacancies and terminating trusts and is intended to honor a settlor's intent while recognizing the modern trend to allow flexibility.
Article 5 identifies the issues raised by creditors and outlines the rules to apply to creditors' claims while addressing the protection of spendthrift provisions and discretionary trusts.
Article 6 clarifies rules for revocable trusts and establishes a new Kansas presumption of revocability for trusts. It also establishes rules for amendment and revocation of trusts, the rights of the beneficiaries while a settlor is living and statutes of limitation on contests.
Article 7 sets forth default rules dealing with the office of trustee and addresses issues including bond requirements and co-trusteeship, vacancies and removal. Also standards are provided for trustee compensation and expense reimbursements.
Article 8 addresses the fundamental duties of a trustee and outlines the trustee's powers. This article addresses a trustee's duties with respect to beneficiary distribution matters and creates new standards for reporting to beneficiaries.
Article 9 confirms that the Uniform Prudent Investor Act at K.S.A. 58-24a01, et seq. applies to the investment and management of trust assets.
Article 10 outlines the liability of trustees and identifies the rights of persons dealing with trustees. Article 11 includes miscellaneous provisions. It also confirms that the Code is intended to have broad application and applies to trusts in existence on the date of enactment and those created on or after the effective date of Jan. 1, 2003.
II. Default Law with Mandatory Provisions
With certain specific limitations, a settlor is free to draft into his or her trust terms that differ from the provisions of this Code. The specific limitations appear as mandatory rules. Unlike the Uniform Trust Code which outlined 14 mandatory rules, the Kansas Uniform Trust Code reduced to 10 the number of mandatory rules. Thus, the terms of a trust prevail over any provision of the Code except (1) the requirements for creating a trust, (2) the duty of a trustee to act in good faith and in accordance with the purposes of the trust, (3) the requirement that a trust and its terms be for the benefit of its beneficiaries, and that the trust have a purpose that is lawful, not contrary to public policy and possible to achieve, (4) the power of the court to modify or terminate a trust under the Code, (5) the power of the court to require, dispense with or modify or terminate a bond under the Code, (6) the power of the court to adjust a trustee's compensation specified in the terms of the trust which is unreasonably low or high, (7) the effect of an exculpatory term under the Code, (8) the rights under the Code of a person other than a trustee or beneficiary, (9) the periods of limitation for commencing a judicial proceeding under the Code and (10) the power of the court to take such action and exercise such jurisdiction as may be necessary in the interests of justice.[4]
III. Basics of Trusts
A revocable trust is frequently executed at the same time as a pour over will and often has as a key purpose the disposition of property at the settlor's death. Now Kansas law clarifies that the capacity required to create, amend, revoke, or add property to a revocable trust, or to direct the actions of the trustee of a revocable trust, is the same as that required to make a will.[5] The new Code does not prescribe exact rules of construction of trusts. However, the new Code extends to trusts the rules of construction of wills.[6]
Section 401 provides three methods of creating a trust. The methods include: (1) transfer of property to another person as trustee during the settlor's lifetime or by will or other disposition taking effect upon the settlor's death, (2) declaration by the owner of property that the owner holds property as trustee, so long as such property would not otherwise pass at the owner's death by a beneficiary designation to a party other than the trust, or (3) exercise of a power of appointment in favor of a trustee.[7] The Code changes Kansas law to provide a new presumption that trusts are revocable unless expressly provided otherwise.[8]
A trust is created only if the settlor has capacity to create a trust, the settlor indicates an intention to create a trust, the trustee has duties to perform, the same person is not the sole trustee and sole beneficiary and the trust has a definite beneficiary or is a charitable trust, a trust for the care of an animal (as now provided in Section 408) or a trust for a non-charitable purpose (as provided in Section 409).[9] Of particular interest for some clients is new law that allows a trust to provide for the care of an animal alive during a settlor's lifetime. Sections 408 and 409 confirm the ability to create honorary trusts. Subject to any rule against perpetuities, a beneficiary is definite if the beneficiary can be ascertained now or in the future.[10] New to Kansas law is authority validating a power in a trustee to select a beneficiary from an indefinite class provided, however, that if the trustee does not exercise the power within a reasonable time, the power fails and the property will pass to the persons who would have taken the property had the power not been conferred.[11]
To the extent its creation was induced by fraud, duress or undue influence, a trust is void.[12] Similar to K.S.A. 59-605 is Section 406(b) which provides in relevant part that "Any provision in a trust, written or prepared for another person, that transfers property and that gives the scrivener or the scrivener's parent, children, issue, sibling or spouse any direct or indirect gift is invalid unless: (1) the scrivener is related to the settlor by blood or marriage; or (2) it affirmatively appears that the settlor had read and knew the contents of the trust and had independent legal advice with reference thereto."
Section 403 provides that Kansas shall recognize the validity of a trust created in another jurisdiction if its creation complies with the law of the jurisdiction in which the trust was executed, or the law of the jurisdiction in which the settlor was domiciled, the trustee was domiciled or had a place of business, or any trust property was located.
The Code introduces a new term...
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