Chapter 16 Arkansas Trust Code Together with Selected Official Comments for the Uniform Trust Code

• Library: Revocable Trusts Handbook for Arkansas Practitioners (2019 Ed.)

CHAPTER 16

ARKANSAS TRUST CODE

Together with Selected Official Comments

for the Uniform Trust Code

NOTE: This text has been edited to reflect the Arkansas changes to the Uniform Trust Code.

Prefatory Note

Overview of Uniform Trust Code

Subchapter 1 — General Provisions And Definitions

28-73-101. Short title.

28-73-102. Scope.

28-73-103. Definitions.

28-73-104. Knowledge.

28-73-105. Default and mandatory rules.

28-73-106. Common law of trusts – Principles of equity.

28-73-107. Governing law.

28-73-108. Principal place of administration.

28-73-109. Methods and waiver of notice.

28-73-110. Others treated as qualified beneficiaries.

28-73-111. Nonjudicial settlement agreements.

28-73-112. Rules of construction.

Subchapter 2 — Judicial Proceedings

28-73-201. Role of court in administration of trust.

28-73-202. Jurisdiction over trustee and beneficiary.

28-73-203. Subject-matter jurisdiction.

Subchapter 3 — Representation

28-73-301. Representation – Basic effect.

28-73-302. Representation by holder of general testamentary power of appointment.

28-73-303. Representation by fiduciaries and parents.

28-73-304. Representation by person having substantially identical interest.

28-73-305. Appointment of representative.

Subchapter 4 — Creation, Validity, Modification, and Termination of Trust

28-73-401. Methods of creating trust.

28-73-402. Requirements for creation.

28-73-403. Trusts created in other jurisdictions.

28-73-404. Trust purposes.

28-73-405. Charitable purposes — Enforcement.

28-73-406. Creation of trust induced by fraud, duress, or undue influence.

28-73-407. Evidence of oral trust.

28-73-408. Trust for care of animal.

28-73-409. Noncharitable trust without ascertainable beneficiary.

28-73-410. Modification or termination of trust — Proceedings for approval

or disapproval.

28-73-411. Modification or termination of noncharitable irrevocable trust by consent.

28-73-412. Modification or termination because of unanticipated circumstances

or inability to administer trust effectively.

28-73-413. Cy Pres.

28-73-414. Modification or termination of uneconomic trust.

28-73-415. Reformation to correct mistakes.

28-73-416. Modification to achieve settlor’s tax objectives.

28-73-417. Combination and division of trusts.

Subchapter 5 — Creditor’s Claims — Spendthrift and Discretionary Trusts

28-73-501. Rights of beneficiary’s creditor or assignee.

28-73-502. Spendthrift provision.

28-73-503. (Reserved).

28-73-504. Discretionary trusts — Effect of standard.

28-73-505. Creditor’s claim against settlor.

28-73-506. Overdue distribution.

28-73-507. Personal obligations of trustee.

Subchapter 6 — Revocable Trusts

28-73-601. Capacity of settlor of revocable trust.

28-73-602. Revocation or amendment of revocable trust.

28-73-603. Settlor’s powers — Powers of withdrawal.

28-73-604. Limitation on action contesting validity of revocable trust — Distribution

of trust property.

Subchapter 7 — Office of Trustee

28-73-701. Accepting or declining trusteeship.

28-73-702. Trustee’s bond.

28-73-703. Co-trustees.

28-73-704. Vacancy in trusteeship — Appointment of successor.

28-73-705. Resignation of trustee.

28-73-706. Removal of trustee.

28-73-707. Delivery of property by former trustee.

28-73-708. Compensation of trustee.

28-73-709. Reimbursement of expenses.

Subchapter 8 — Duties and Powers of Trustee

28-73-801. Duty to administer trust.

28-73-802. Duty of loyalty.

28-73-803. Impartiality.

28-73-804. Prudent administration.

28-73-805. Costs of administration.

28-73-806. Trustee’s skills.

28-73-807. Delegation by trustee.

28-73-808. Powers to direct.

28-73-809. Control and protection of trust property.

28-73-810. Recordkeeping and identification of trust property.

28-73-811. Enforcement and defense of claims.

28-73-812. Collecting trust property.

28-73-813. Duty to inform and report.

28-73-814. Discretionary powers — Tax savings.

28-73-815. General powers of trustee.

28-73-816. Specific powers of trustee.

28-73-817. Distribution upon termination.

Subchapter 9 — Uniform Prudent Investor Act

28-73-901. Prudent investor rule.

28-73-902. Standard of care — Portfolio strategy — Risk and return objectives.

28-73-903. Diversification.

28-73-904. Duties at inception of trusteeship.

28-73-905. Reviewing compliance.

28-73-906. Language invoking standard of subchapter.

28-73-907. Application to existing trusts.

28-73-908. Uniformity of application and construction.

Subchapter 10 – Liability of Trustees and Rights of Persons Dealing With Trustees

28-73-1001. Remedies for breach of trust.

28-73-1002. Damages for breach of trust.

28-73-1003. Damages in absence of breach.

28-73-1004. Attorney’s fees and costs.

28-73-1005. Limitation of action against trustee.

28-73-1006. Reliance on trust instrument.

28-73-1007. Event affecting administration or distribution.

28-73-1008. Exculpation of trustee.

28-73-1009. Beneficiary’s consent, release, or ratification.

28-73-1010. Limitation on personal liability of trustee.

28-73-1011. Interest as general partner.

28-73-1012. Protection of person dealing with trustee.

28-73-1013. Certification of trust.

Subchapter 11 — Miscellaneous Provisions

28-73-1101. Uniformity of application and construction.

28-73-1102. Electronic records and signatures.

28-73-1103. Severability clause.

28-73-1104. Effective date.

28-73-1105. Application to existing relationships.

PREFATORY NOTE

The Uniform Trust Code (2000) is the first national codification of the law of trusts. The primary stimulus to the Commissioners’ drafting of the Uniform Trust Code is the greater use of trusts in recent years, both in family estate planning and in commercial transactions, both in the United States and internationally. This greater use of the trust, and consequent rise in the number of day-to-day questions involving trusts, has led to a recognition that the trust law in many States is thin. It has also led to a recognition that the existing Uniform Acts relating to trusts, while numerous, are fragmentary. The Uniform Trust Code will provide States with precise, comprehensive, and easily accessible guidance on trust law questions. On issues on which States diverge or on which the law is unclear or unknown, the Code will for the first time provide a uniform rule. The Code also contains a number of innovative provisions.

Default Rule: Most of the Uniform Trust Code consists of default rules that apply only if the terms of the trust fail to address or insufficiently cover a particular issue. Pursuant to § 105, a drafter is free to override a substantial majority of the Code’s provisions. The exceptions are scheduled in § 105(b).

Innovative Provisions: Much of the Uniform Trust Code is a codification of the common law of trusts. But the Code does contain a number of innovative provisions. Among the more significant are specification of the rules of trust law that are not subject to override in the trust’s terms (§ 105), the inclusion of a comprehensive article on representation of beneficiaries (Article 3), rules on trust modification and termination that will enhance flexibility (§§ 410-417), and the inclusion of an article collecting the special rules pertaining to revocable trusts (Article 6).

Models for Drafting: While the Uniform Trust Code is the first comprehensive Uniform Act on the subject of trusts, comprehensive trust statutes are already in effect in several States. Notable examples include the statutes in California, Georgia, Indiana, Texas, and Washington, all of which were referred to in the drafting process. Most influential was the 1986 California statute, found at Division 9 of the California Probate Code (§§ 15000 et seq.), which was used by the Drafting Committee as its initial model.

Existing Uniform Laws on Trust Law Subjects: Certain older Uniform Acts are incorporated into the Uniform Trust Code. Others, addressing more specialized topics, will continue to be available for enactment in free-standing form. The following Uniform Acts are incorporated into or otherwise superseded by the Uniform Trust Code:

Uniform Probate Code Article VII – Originally approved in 1969, Article VII has been enacted in about 15 jurisdictions [not including Arkansas]. Article VII, although titled “Trust Administration,” is a modest statute, addressing only a limited number of topics. Except for its provisions on trust registration, Article VII is superseded by the Uniform Trust Code. Its provisions on jurisdiction are incorporated into Article 2 of the Code, and its provision on trustee liability to persons other than beneficiaries are replaced by § 1010.

Uniform Prudent Investor Act (1994) – This Act has been enacted in 35 jurisdictions [including Arkansas]. This Act, and variant forms enacted in a number of other States, has displaced the older “prudent man” standard, bringing trust law into line with modern investment practice. States that have enacted the Uniform Prudent Investor Act are encouraged to recodify it as part of their enactment of the Uniform Trust Code. A place for this is provided in Article 9.

Uniform Trustee Powers Act (1964) – This Act has been enacted in 16 states [not including Arkansas]. The Act contains a list of specific trustee powers and deals with other selected issues, particularly relations of a trustee with persons other than beneficiaries. The Uniform Trustee Powers Act is outdated and is entirely superseded by the Uniform Trust Code, principally at §§ 815, 816 and 1012. States enacting the Uniform Trust Code should repeal their existing trustee powers legislation.

Uniform Trusts Act (1937) – This largely overlooked Act of similar name was enacted in only six states [not including Arkansas], none within the past several decades. Despite a title suggesting comprehensive coverage of its topic, this Act, like Article VII of the UPC, addresses only a limited number of topics. These include the duty of loyalty, the...