The Uniform Trust Code Revives the Historical Purposes of Trusts and Reiterates the Importance of the Settlor's Intent

• Publication year: 2022

43 Creighton L. Rev. 905. THE UNIFORM TRUST CODE REVIVES THE HISTORICAL PURPOSES OF TRUSTS AND REITERATES THE IMPORTANCE OF THE SETTLOR'S INTENT

THE UNIFORM TRUST CODE REVIVES THE HISTORICAL PURPOSES OF TRUSTS AND REITERATES THE IMPORTANCE OF THE SETTLOR'S INTENT

Benjamin D. Patterson

I. INTRODUCTION

An accepted principle of trust law is that a trust exists for the benefit of its beneficiaries and the trustee has a duty to manage the assets of the trust for the benefit of those beneficiaries.(fn1) Traditionally, the trustee had a duty to carry out the settlor's intent regarding the terms of the trust and the settlor was permitted to set forth the duties of the trustee in the trust instrument.(fn2) The Uniform Trust Code(fn3) ("UTC"), adopted by twenty-one jurisdictions,(fn4) codifies the common-law principle that a settlor's intent controls the provisions of the trust, while also setting forth a standard that creates both uniformity and predictability.(fn5) Courts in jurisdictions not adopting the UTC lack both a standard and guidance when determining issues of trust law.(fn6)

This Article will first demonstrate that the historical purposes of living trusts were to benefit the beneficiary and that the settlor's intent was a controlling factor in enforcing and interpreting trust agreements.(fn7) This Article will then examine the UTC's attempt to codify a uniform approach to balance the beneficiary's interests and the settlor's intent.(fn8) This Article will then discuss critic's opposition pertaining to the need to follow the settlor's intent as well as the "benefit-the-beneficiary" rule provided for in the UTC.(fn9) Next, this Article will evaluate cases from jurisdictions that have adopted the UTC.(fn10) In In re Trust Created By Isvik(fn11) and In re Biggs Charitable Remainder Trust,(fn12) the Supreme Court of Nebraska and Supreme Court of Kansas, respectively, relied on the UTC to determine the rights among the parties based on the settlors' intents.(fn13) The results of those cases are in line with the historical purposes of trusts.(fn14) Finally, this Article will examine the results of recent decisions from courts in jurisdictions that have not adopted the UTC.(fn15) In JP Morgan Chase Bank, N.A. v. Longmeyer,(fn16) the Supreme Court of Kentucky considered the duties of a former trustee following the revocation of a trust and, without reference to the settlor's intent, determined that the trustee had a duty to inform former beneficiaries of their lost interest.(fn17) In Johnson v. Johnson,(fn18) the Maryland Court of Special Appeals considered whether a settlor could, through terms of the trust, release the trustee of the duty to report to beneficiaries, and determined, again without reference to the settlor's intent, that a settlor cannot release a trustee of all accountability.(fn19) In both Longmeyer and Johnson, the jurisdictions' failure to adopt the UTC led to a pattern of reasoning that does not align with the historical purposes of trust law.(fn20)

This Article will establish that the UTC has successfully codified a standard, which successfully accounts for the historical purposes of trusts.(fn21) This Article will establish that settlor's intent is the overriding principle found within the provisions of the UTC.(fn22) Furthermore, this Article will show that courts in jurisdictions adopting the UTC have honored the settlor's intent by ascertaining that intent and making decisions that comply with and promote it.(fn23) Additionally, jurisdictions adopting the UTC have reached more predictable and uniform decisions that are more consistent with the historic purposes of trusts than courts from jurisdictions that have not adopted the UTC.(fn24) This predictability and uniformity result from the UTC's unified approach in determining the rights of beneficiaries while accounting for the settlor's intent, rather than relying on outdated statutes and case law.(fn25)

II. BACKGROUND

A. HISTORICAL PURPOSES OF TRUSTS

As early as the thirteenth century, landowners arranged what they called "uses," which are similar to modern day trust mechanisms.(fn26) Under these uncomplicated arrangements, landowners would transfer the title to property to feoffees on the agreement that the feoffee would later transfer that same property to a beneficiary named by the owner.(fn27) These types of transfers required the landowner trust that the feoffee would remain loyal and not later lay claim to the property.(fn28) As "uses" were not enforceable at law, the landowner and the future beneficiary could not look to the courts if the feoffee proved unreliable.(fn29)

As uses grew more popular, beneficiaries who had expected to receive property from landowners became disgruntled when feoffees refused to transfer title to the land.(fn30) As a result, many beneficiaries attempted to turn to the common-law courts for relief.(fn31) However, due to rigid pleading requirements, beneficiaries had little success in common-law courts.(fn32)

Starting in the late fourteenth century and continuing into the early fifteenth century, beneficiaries stopped seeking relief in the common-law courts and instead appealed to the equity courts for justice.(fn33)The Chancellors of the equity courts felt it was their duty to rule on cases in accordance with their conscience rather than by the rigid pleading system and rules of precedence used in the common-law courts.(fn34) The equity courts ruled and granted relief by theorizing they were simply requiring trustees to act upon the dictates of their own conscience.(fn35) The equity courts believed their role was simply to enforce the trustee's pre-existing moral obligation.(fn36) By the middle of the fifteenth century, the equity courts routinely enforced beneficiaries' rights in uses.(fn37)

The equitable doctrine to enforce pre-existing moral norms helped to establish the duty of loyalty.(fn38) As law relaxed the tight restrictions on the transfer of property, the duty of loyalty has become increasingly more complicated.(fn39) Trusts have evolved from a simple mechanism used to hold real property to ones utilized primarily for asset management.(fn40) The modern trust has evolved along with society's definition of wealth.(fn41) As compared to previous centuries, when society calculated wealth by the amount of land owned, modern wealth now consists of complex financial assets such as bonds, stocks, pension plans, annuity and insurance contracts, and bank deposits.(fn42) These complex financial assets make up modern trusts and as a consequence, trusts require highly specialized and active management.(fn43)

The evolution of the trustee's role has accompanied the evolution of the trust from realty to complex financial assets.(fn44) Yet, even with this evolution, the principles behind the trust have remained the same.(fn45) These principles include a trustee managing the trust as directed by the settlor, for the benefit of a beneficiary.(fn46) Trustees in the early years of trust creation were unpaid laypersons who simply acted as a middleman in the conveyance of land.(fn47) In contrast, the modern-day trustee is often a paid professional dedicated to the management of trust assets.(fn48) These modern-day trustees rely on their experience and expertise in taxation, investment management, trust accounting, fiduciary administration, and regulation to effectively manage trust assets.(fn49) In the United States, these trustees are often large profit seeking corporations.(fn50) These corporate fiduciaries offer a host of benefits such as financial backing and longevity.(fn51) These benefits give confidence to the trust's creator if a situation arises where the trustee erroneously manages the trust, and also prevent the need for a settlor to designate within the trust for a successor to take the place of a previous trustee.(fn52)

Along with the specialized and active management necessary to manage a trust, fiduciary duties have also become more detailed and complex.(fn53) The relationship between the settlor, trustee, and beneficiary initiated at the creation of a trust necessarily puts the beneficiaries at the risk of the trustees' mismanagement of the trust assets.(fn54) The fundamental concern in modern-day trust law has been to protect against these risks.(fn55)

B. HISTORICAL PURPOSE AND THE UNIFORM TRUST CODE

The Uniform Trust Code(fn56) ("UTC") establishes a definitive standard to govern the powers and duties of a trustee, the relations among trustees, and the interest and rights of a beneficiary.(fn57) While establishing a uniform and definitive standard, the UTC also allows flexibility to individual states to change and modify certain provisions in accordance with the needs of a particular jurisdiction.(fn58) In accord with the historical purposes of trusts, the UTC has codified the rule that a living trust exists to benefit the beneficiaries.(fn59) Furthermore, the UTC establishes this rule as mandatory and one that a settlor cannot waive.(fn60) Historically, trustees and courts regarded the settlor's intent as the guide to trust administration.(fn61) Thus, the general rule was that the settlor alone determined the terms of the trust that would best serve that settlor's beneficiaries.(fn62) The Restatement Third of Trusts and various courts in multiple jurisdictions have reaffirmed this rule.(fn63)

C.THE SETTLOR'S INTENT UNDER THE UNIFORM TRUST CODE

One of the main...