The Uniform Trust Code (2000) and its Application to Ohio

• Author: David M. English
• Position: Professor of Law, University of Missouri- Columbia
• Pages: 1-28

Page 1

David M. English: Reporter, Uniform Trust Code (2000); Executive Director, Joint editorial Board for Uniform Trust and Estates Acts; B.A., Duke University; J.D., Northwestern University. Special thanks to Robert Brucken, of Baker & Hostetler in Cleveland, for his comments on an earlier draft of this article. A condensed version of this article appeared as David M. English, The Uniform Trust Code and Its Application to Ohio, 12 PROB. L.J. OF OHIO 1 (2001).

Reprinted from Probate Law Journal of Ohio, September/October 2001, with the permission of the publisher and copyright owner, West Group.

I Introduction

The Uniform Trust Code (2000) ("U.T.C."), which was approved by the National Conference of Commissioners on Uniform State Laws on August 3, 2000, is the Commissioners' first effort to provide the states with a comprehensive model for codifying their law on trusts.¹The Estate Planning, Trust and Probate Law Section of the Ohio State Bar Association is currently studying the U.T.C. for possible enactment in Ohio.²This article provides an overview of the U.T.C., focusing on how its enactment would change existing Ohio law.

The drafting of the U.T.C. was prompted by the much greater use of trusts in recent years. This greater use of the trust and consequent rise in the number of day-to-day questions involving trusts led to a recognition by the Commissioners that the trust law in most states is thin, leaving many gaps between the often few statutes and reported cases.³It also led to recognition that previous uniform acts relating to trusts, while numerous, are fragmentary.⁴For example, the primary source of trust law in Ohio and in most other states is the Restatement of Trusts and the multi-volume treatises by Scott⁵and Bogert,⁶sources that fail to address numerous practical issues and fail to provide sufficient guidance on others.

While the U.T.C. is the first comprehensive uniform act on the subject of Page 2 trusts, comprehensive trust statutes are already in effect in several states, with the statutes in California⁷and Texas⁸being the most widely known. The U.T.C. is not directed principally at these states, but at states like Ohio whose statutes on trusts are scattered and incomplete. The trust statutes that do exist in Ohio are found scattered amongst the probate statutes codified in title 21 of the Ohio Revised Code, in chapters 1339 and 1340 of the Revised Code. Because title 21 is limited to fiduciaries appointed by a court,⁹the title 21 trust statutes apply only to testamentary trusts. The statutes in chapters 1339 and 1340 apply to both inter vivos and testamentary trusts, but are limited in number. Enactment of the U.T.C. would enable Ohio to update its existing statutes, address issues not now addressed, and codify all its trust law in one place.

II Related Uniform Acts

There are numerous other uniform acts relating to trusts, but all deal with discrete topics. Superseded and replaced by the U.T.C. are article 7 of the Uniform Probate Code and the Uniform Trustee Powers Act, neither of which has been enacted in Ohio. Not superceded by the U.T.C. is the Uniform Prudent Investor Act, enacted by Ohio in 1999.¹⁰The U.T.C. instead provides a place in article 9 for an enacting jurisdiction to codify its version of the Uniform Prudent Investor Act. There are numerous other uniform acts addressing trust-related topics that are not affected by the U.T.C. Of these other acts, Ohio has enacted the Uniform Management of Institutional Funds Act,¹¹the 1962 version of the Uniform Principal and Income Act,¹²and the 1991 version of the Uniform Testamentary Additions to Trusts Act.¹³

III Restatement of Trusts

The U.T.C. was drafted in close coordination with the revision of the Restatement of Trusts.¹⁴This coordination has hopefully made both into Page 3better products. The U.T.C. offers the benefit of certain rules. The Restatement provides a wealth of background materials for interpreting the language of the Code. The Restatement (Second) of Trusts was approved by the American Law Institute in 1957.¹⁵Beginning in the late 1980s, work on the Restatement (Third) began. The portion of Restatement (Third) relating to the prudent investor rule and other investment topics was completed and approved in 1990.¹⁶A tentative draft of the portion of Restatement (Third) relating to the rules on the creation and validity of trusts was approved in 1996;¹⁷the portion relating to the office of trustee, trust purposes, spendthrift provisions, and the rights of creditors was approved in 1999;¹⁸the portion on termination and modification of trusts was approved in 2001.¹⁹

Restatements serve a proactive role close to that of uniform acts. A Restatement is more than a document that collects and summarizes in one place the law of a particular subject. Rather, a Restatement strives to delineate the better rule where the decisions of the courts conflict. It also strives to fill in gaps in the law. That is, it attempts to promote the rule that courts should apply when they encounter an issue for the first time. The hope is that the courts of the different states, by relying on the Restatement as a primary guide, will adopt uniform rules of decision.

The Restatement of Trusts has been cited frequently by the Ohio courts.²⁰

However, this reliance is not consistent and the Restatement addresses numerous topics on which there are yet no Ohio cases. Moreover, many of the Ohio cases cited in the law encyclopedias as establishing basic trust principles are obscure trial court opinions not included in the electronic databases.²¹By contrast, the U.T.C., when enacted, will become a mandatory rule of law that can be relied on and will be easily accessible. The U.T.C. will thus serve an important educational function. Legal practitioners in Ohio will, for the first time, actually be able to determine their state's law on trusts.

IV Scope of Coverage

The U.T.C. states the law relating to express trusts.²²These are trusts Page 4 created by settlors who during life or at death transfer property to a trustee or who during their lifetime declare themselves trustee of their own property.²³

Following its creation, the trustee will then hold the property for the benefit of beneficiaries. ²⁴This is to be distinguished from what are known as resulting or constructive trusts which are remedial devices imposed by the courts.²⁵

Trusts are best known as a device for planning an individual's personal estate. But trusts are increasingly being used as tools for facilitating commercial transactions. Examples of commercial transactions where the use of trusts is prevalent, if not predominant, include pension funds, mutual funds for pooling investment assets, and trusts to secure repayment of corporate debt.²⁶The U.T.C. is not directed specifically at commercial trusts, but it does not exclude them. The extent to which commercial trusts are subject to the U.T.C. depends on the type of trust and the laws, other than the U.T.C., under which the trust was created. Even if the commercial trust is governed exclusively by another body of law, the courts are free to look to the U.T.C. for guidance in interpreting this other law.

V Overview of Provisions

The breadth of the U.T.C. is indicated by its organization. The U.T.C. is organized into eleven articles. Article 1, in addition to providing definitions,²⁷addresses topics such as the ability of a trust instrument to override the U.T.C.'s provisions,²⁸the validity of choice of law provisions and the law to govern in the absence of such a provision, ²⁹and the procedure for transferring the principal place of administration to another jurisdiction.³⁰

Article 2 addresses selected topics involving judicial proceedings concerning trusts.³¹Included is the conferring of jurisdiction on the court to intervene in a trust's administration,³²specification of the court's jurisdiction Page 5 over trustees and beneficiaries,³³and optional provisions on subject-matter jurisdiction³⁴and venue.³⁵This minimal coverage was deliberate; the drafting committee concluded that most issues relating to jurisdiction and procedure before the courts are best left to other bodies of law such as the rules of civil procedure.³⁶Even among those provisions that remain, local conditions may dictate modification.³⁷The optional provision on venue³⁸may conflict with the local jurisdiction's general venue rules. The provision on subject-matter jurisdiction³⁹was designed for a jurisdiction in which one category of court, such as a chancery court, has exclusive jurisdiction over proceedings concerning administration of any type of trust, whether inter vivos or testamentary. In Ohio, the probate court has exclusive jurisdiction over testamentary trusts, but concurrent jurisdiction with the general division of the court of common pleas with respect to inter vivos trusts.⁴⁰

Most of the topics addressed in articles...