A Strong Offense
A Stronger Defense
Effective earlier this month, Delaware once again amended its trust statutes. In what has become an (almost) annual ritual, Delaware has tweaked its trust statutes in an effort to make the state a more appealing jurisdiction for trust administration. A full look at the law is here, but here are some of the highlights:
Children Born Out of Wedlock
Section 1 of the Act amending the trust statutes cross-references the legitimation process elsewhere in the Delaware Code for purposes of intestate succession for persons born out of wedlock.
Definition of “Governing Instrument”
The definition of “governing instrument” now also expressly includes “any instrument that modifies a governing instrument or, in effect, alters the duties and powers of a fiduciary or other terms of a governing instrument.”
No Duty to Inquire to Satisfy Prudent Person Standard
The amendments clarify that a fiduciary has no duty to inquire as to the nature and extent of investments held by the fiduciary in an investment directed trust or an investment directed account within a trust for the fiduciary to satisfy the Code’s prudent person standard.
Governing Instrument May Override Trust Law
The amendments also clarify that a governing instrument may expand, restrict, eliminate, or otherwise vary “provisions of general application to trusts and trust administration.”
Creditor Claims against Revocable Trusts
This section was tweaked to reflect Delaware’s recognition of same-sex marriages by changing references from “husband and wife” to “spouses.” It also cleaned up some unnecessarily convoluted language regarding creditors’ remedies against spouses who have contributed property held as joint tenants to revocable trusts.
Appointment of Successor Trustee
The new laws provide a procedure for non-judicial appointment of successor trustees in certain situations:
If a trust has no serving trustee because of the death, incapacity or resignation of the last serving trustee of the trust, and if the provisions of the governing instrument do not include any provisions which can be effectively used to appoint a successor trustee, and if the only remaining dispositive provisions of the trust then require distribution of the remaining property of the trust to one or more beneficiaries (whether outright, or to one or more other trusts which do have a serving trustee), then the taking beneficiaries of the trust, by unanimous vote, may name a successor trustee of the trust without the approval of the Court of Chancery. For purposes of the preceding sentence, the person entitled to vote with respect to a beneficiary which is another trust which has a serving trustee is the trustee or trustees of such trust.
Claims Against Revocable Trusts
The following language was added to address claims against revocable trusts:
Following the death of the trustor of a trust that was revocable immediately prior to the trustor’s death, all claims against the trust that, but for any applicable period of limitations, could have been brought against the trustor’s estate, whether due or to become due, absolute or contingent, liquidated or unliquidated, founded on contract, tort or other legal basis, if not barred earlier by other statute of limitations, are barred against the trust when and to the same extent barred against the trustor’s estate by any applicable statute of limitations or statute of repose on claims against the estate including any such statute of limitations or repose enacted by jurisdictions other than this State.
Failure to Exercise Decanting Power
Absent willful misconduct, no trustee or adviser has a duty to exercise the power to decant.
Virtual representation may be available if there are no “material conflicts of interest” between the person doing the representing and the person being represented. The statute now includes three situations in which a material conflict of interest is presumed:
1. a situation in which the representative would, as a result of the judicial proceeding or nonjudicial matter, be appointed to a fiduciary or nonfiduciary office or role relating to the trust unless the representative presently serves in a fiduciary or nonfiduciary office or role relating to the trust and will not receive greater authority, broader discretion, or increased protection by reason of the new appointment;
2. a situation in which the representative currently holds a fiduciary or nonfiduciary office or role relating to the trust and, as a result of the judicial proceeding or nonjudicial matter, will receive greater authority, broader discretion, or increased protection by reason of the judicial proceeding or nonjudicial matter; and
3. a situation in which the representative has any other actual or potential conflict of interest with the represented beneficiaries with respect to the particular question or dispute, including but not limited to a conflict resulting from a differing investment horizon or an interest in present income over capital growth.
Non-Judicial Settlement Agreements
Delaware has now adopted language similar to the UTC’s non-judicial settlement language:
§ 3338. Non judicial Settlements Agreements.
(a) For purposes of this section, “interested persons” means persons whose consent would be required in order to achieve a binding settlement were the settlement to be approved by the Court of Chancery.
(b) Except as otherwise provided in subsection (c), interested persons may enter into a binding nonjudicial settlement agreement with respect to any matter involving a trust (other than a trust described in § 3541 of this title).
(c) A nonjudicial settlement agreement is valid only to the extent it does not violate a material purpose of the trust and includes terms and conditions that could be properly approved by the Court of Chancery under this title or other applicable law.
(d) Matters that may be resolved by a nonjudicial settlement agreement include:
(1) the interpretation or construction of the terms of the trust;
(2) the approval of a trustee’s report or accounting;
(3) the direction to a trustee to refrain from performing a particular act or the grant to a trustee of any necessary or desirable power;
(4) the resignation or appointment of a trustee and the determination of a trustee’s compensation;
(5) the transfer of a trust’s principal place of administration; and
(6) the liability of a trustee for an action relating to the trust.
(e) Any interested person may bring a proceeding in the Court of Chancery to interpret, apply, enforce, or determine the validity of a nonjudicial settlement agreement adopted under this Section, including but not limited to determining whether the representation as provided in § 3547 of this title was adequate.”