July 1, 2014

The Wisconsin Trust Code became effective July 1, 2014.  This new law applies to both testamentary trusts and living trusts. The law is also retroactive, meaning that it applies to trusts created both before and after July 1.   The Act is very thorough and covers many different concepts, however an exhaustive treatment of the Act is beyond the scope of this article.  The following are some of the noteable changes in Wisconsin’s law.

Changes in Trust Administration

Duties of the Trustee.  There are many additional duties that Trustees now have under the Wisconsin Trust Code, including a specific duty to inform and report that is owed to the beneficiaries.    Trustees are now obligated to provide specific information, including an annual accounting and copies of the Trust documents to certain beneficiaries.  Those currently acting as Trustees should consult with an attorney to make sure they are complying with the new law.   In addition, those considering a Trust should determine whether they want to limit these duties through drafting. 

Testamentary Trusts.  Testamentary trusts (trusts created under a Will) are no longer subject to Court supervision unless ordered by the Court.  Therefore, annual accounts for testamentary trusts will no longer be required.  Whether an annual account will be due in 2014 is a county by county decision. 

Distributions upon Trust Termination. Upon termination of a trust, the Trustee may now send beneficiaries a notice of proposed distributions which must include informing the beneficiary of the right and time limit to object to the proposed distribution.  A beneficiary to whom notice is sent has 30 days to object. 

Changes in Trust Modification and Termination

The ability to modify and terminate Trusts already in existence, even if irrevocable, has been greatly expanded and also more clearly defined in the Act. 

Nonjudicial Settlement Agreements.  Interested persons may now enter into binding, nonjudicial settlement agreements with respect to any matter involving a trust.  In addition, any interested person may request the court to approve the agreement.  Clair Law Offices has already used this new legal tool in a pending matter.

Unanticipated Circumstances.  The court may modify the terms of the trust or terminate the trust if, because of circumstances not anticipated by the individual who created the trust, this will further the purposes of the trust.  The Court may also modify the administrative terms if continuing under the existing terms would be impractical or wasteful or would impair the trust administration. 

Uneconomic Trusts.  The default threshold for uneconomic trusts has been increased to $100,000.00, as indexed for inflation, which means that a trust may be terminated as insufficient to justify administration costs if the assets in the Trust are below this threshold. 

Decanting.  A trustee now has the power to decant, which means to transfer the assets from one trust to a second trust with different terms.  Decanting may be done for various reasons including, but not limited to, correcting a drafting error, clarifying terms, changing the age of distribution, adding a spendthrift provision, changing trustees, or allowing for division or merger of the trust.  A trustee may decant assets even if the first trust includes a spendthrift clause or a provision that prohibits amendment or revocation of the trust.

Changes in Estate Planning Options

Trusts for Care of Animal.  Wisconsin now has a specific statute allowing for and setting default rules for a trust created for the care of an animal.

Trust Protectors.  Wisconsin has added specific laws regarding a role titled trust protector.  A trust protector may be appointed by the person creating a trust, by court in a court order, or by the interested persons in a nonjudicial settlement agreement.  The trust protector has only those powers granted in the trust instrument, court order or nonjudicial settlement agreement.  Possible powers include to interpret or enforce the terms of the trust, review and approve trustee reports or accountings, modify the trust instrument to respond to changes in the law affecting trusts, or advise the trustee on matters concerning a beneficiary.

Directed Trusts.  Wisconsin law now allows for a directed trust, which provides for dividing the investment and distribution functions of a fiduciary between a directing party and the trustee.  A directed trust requires a party with the power to direct (the “directing party”) and a designated trustee who is obligated to follow the direction of the directing party. 

Overall, this new law provides more clarity and uniformity regarding Wisconsin Trusts, creates many additional estate planning options with regard to Trusts for Wisconsin residents, and adds flexibility which makes Wisconsin a much more desirable place to administer trusts.  As for those provisions that may not be desired for various reasons, the Trust Code is a default statute, which means that, in most cases, if you do not like what the Code provides, you can override that provision in drafting your trust.  Please contact one of the Attorneys at Clair Law Offices to discuss the effect of Wisconsin’s new Trust Code on your estate plan.