TRUST AND ESTATE LAW
BY CONSTANCE TROMBLE EYSTER AND CARL G. STEVENS
This article discusses the Colorado Uniform Trust Code, which became effective on January 1, 2019.
The Colorado Uniform Trust Code (the CUTC or Code) was signed into law on April 26, 2018, with an effective date of January 1, 2019.1 The CUTC is generally a retroactive statute2 and applies to all trusts except business trusts and a limited number of enumerated arrangements.3 The Code repeals and replaces most of CRS Tide 15, Article 16, which governed trust administration.4For now, the Directed Trustees Act5 and the Decanting Act remain in Article 16.7
The CUTC's Evolution
The CUTC is based on the Uniform Trust Code (UTC), a comprehensive statute first drafted by the Uniform Law Commission in 2000 and subsequently amended several times. To date, the UTC has been enacted in some form in 33 jurisdictions.
A committee of the CBA's Trust and Estate Section (the Committee) reviewed the UTC and drafted a proposed bill in 2005. That effort failed for a variety of reasons, but primarily because the trust and estate legal community could not reach consensus on the UTC's provisions regarding creditor's claims. These provisions regarding creditor's claims (UTC Part 5) were not included in the CUTC and continue to be studied by the Committee.
While the CUTC strives to maintain uniformity with the UTC, changes to the uniform law were made to retain important Colorado policy in pre-existing laws. For example, the judicial tool box,8the Cost and Compensation Act,9 trust registration provisions, the pet trust statute,10 and many other unique aspects of trust law in Colorado have been retained.
The CUTC is divided into 14 parts. Parts 5, 9,11, and 12 are reserved for future enactments or serve as placeholders for possible transfer of pre-existing statutes related to trusts.
Part 1: General Provisions and Definitions
Most of the CUTC's definitions will look familiar to practitioners because they are similar to the definitions in the Colorado Uniform Probate Code (CUPC), but some definitions are new. "Alternative dispute resolution"12 (ADR) is a definition unique to the CUTC. It is defined as "a method of nonjudicial dispute resolution a s set forth in the trust instrument, which may include but is not limited to a method prescribed pursuant to the uniform arbitration act... ."13 ADR clauses in a trust are valid and enforceable unless they could be held invalid on the same grounds as a trust would be deemed invalid (e.g., lack of capacity or undue influence). The court may order parties to a trust proceeding to participate in ADR so long as the court's order is consistent with any ADR provision in the trust agreement.
The definitions of beneficiary, qualified beneficiary, and interested party are of primary importance to parties involved in trust administration or enforcement actions. Understanding these terms is essential, in particular for identifying persons entitled to notice, consent, or participation in judicial proceedings.
Under CRS § 15-5-103(4)(a), "beneficiary" includes a person who has a present or future interest in a trust and a person (other than a trustee) who has a power of appointment over the property. A beneficiary "does not include an appointee under a power of appointment unless or until the power is exercised and the trustee has knowledge of the exercise and identity of the appointee."
"Interested person" has a substantially more limited meaning in the CUTC than an in the CUPC. The term "interested person" is used primarily in CUTC Part 2, which deals with judicial settlements, trust registration, and court action to address matters of trust administration. In the CUTC, an interested person is "a qualified beneficiary or other person having a property right in or claim against a trust estate, which right or claim may reasonably and materially be affected by a judicial proceeding pursuant to this Code. The term also includes fiduciaries and other persons having authority to act under the terms of the trust."15 This definition was drafted to limit interested persons to individuals with a material interest in the trust issue at hand and to exclude individuals who have only a remote or tangential interest.
The term "qualified beneficiary" appears frequently in the CUTC, particularly in matters regarding disclosure, notice, and consent. The definition has been used in other uniform acts adopted in Colorado. A "qualified beneficiary" is a beneficiary who, on the date of the beneficiary's qualification, is "a distributee or permissible distributee of trust income or principal" or "would be a distributee or permissible distributee of trust income or principal" if the interests of the current beneficiaries terminated on that date without causing the trust to terminate or if the trust terminated on that date.16 Others, such as "charities" and "beneficiaries" who notify the trustee, may be treated as "qualified beneficiaries."17
"Terms of a trust" is defined in several places in other Colorado statutes. The various definitions are similar, but not quite the same.18 The CUTC definition was crafted by consensus among practitioners involved in drafting this and other trust and estate statutes. CRS§ 15-5-103(21) defines "terms of a trust" to mean "the manifestation of the settlor's intent regarding a trust's provisions, as expressed in the trust instrument, or as may be established by other evidence in a judicial proceeding, or a nonjudical settlement agreement19 or by alternative dispute resolution . .. ."20 CRS § 15-5-103(21) allows trust terms to be defined by terms that "would be admissible" in a judicial proceeding. The Committee modified the UTC definition to include only those terms established in a judicial proceeding or other formal means.
Default Statute and Mandatory Rules
The CUTC is primarily a default statute. Its default provisions can be overridden by the settlor's intent as expressed in the trust instrument. However, 14 CUTC provisions are mandatory21 and cannot be modified. The CUTC mandatory rules below are consistent with the UTC, except for item 5.
1. Minimum requirements for creating a trust. CUTC Part 4 governs what is required to create a trust, which is consistent with Colorado trust law generally. Under CRS § 15-5-402(1), a trust is only created if (1) a settlor with capacity indicates intention to create a trust, or a statute, judgment, or decree authorizes the creation of a trust; (2) the trust has a definite beneficiary; (3) the trustee has duties to perform; and (4) the same person is not the sole trustee and beneficiary. Regarding the last factor, a person is not the "sole" beneficiary, even if that person is the sole current distributee, so long as there are beneficiaries with future interests in the trust.22
2. Trustee's duties. A trustee must act in good faith and in accordance with the trust's terms and purposes and the beneficiaries' interests. The trustee's duties are substantially set forth in CUTC Part 8.23
3. Trust purpo se and benefits. A trust must be for the benefit of its beneficiaries and have a purpose that is lawful, not contrary to public policy, and possible to achieve.24
4. Court's powers. The terms of the trust will not prevail over the court's power to modify or terminate a trust as governed by CRS §§ 15-5-410 to-416.
5. Creditor's claims. UTC Part 5 is currently not part of the CUTC. Part 5, concerning creditor's claims, is reserved in the CUTC. If Part 5 is added to the CUTC in the future, it is likely that another mandatory provision will be added to state that a settlor cannot modify the effect of a spendthrift provision or the rights of certain preferred creditors and assignees as set forth in the Code.
6. Bonds. The court has the power to require, dispense with, modify, or terminate a bond.25
7. Trustee compensation. The court has the power to adjust a trustee's compensation when the trust terms provide for compensation that is unreasonably low or high.26
8. Notice. The trustee has a duty to provide notice of the existence of an irrevocable trust, of the identity of the trustee, and of the right to request trustee's reports to current distributees or permissible distributees of such trust at any age, or to other qualified beneficiaries of such trust who have attained 25 years of age.27
9. Information requests. The trustee has a duty under CRS § 15-5-813(1) to respond to the request of a qualified beneficiary of an irrevocable trust for trustee's reports and other information reasonably related to the trust...