Search
Close this search box.

New Uniform Trust Code Does Not Permit Termination of Trust

Print Article

MAY 24, 2004 VOLUME 11, NUMBER 47

Revocable living trusts have become immensely popular for estate planning in the past few decades. Once used primarily for commercial endeavors (like railroads, steel manufacturing and the like) and management of the assets of only the wealthiest families, trusts have in recent years become commonplace. As a result, the law governing living trusts has evolved more quickly during that time period than in earlier centuries, and new laws have been adopted to clarify trust rules and direct administration of trusts. One major rewrite of trust law, the Uniform Trust Code, has been adopted in a handful of states—and both adopted and repealed in Arizona within the last year.

Several other states, including Kansas, adopted the Uniform Trust Code very quickly after it was proposed. Lawyers expected the new law to generate a flurry of litigation, as the courts interpret the effect of trust law changes. One of the first of those new court cases has been decided by the Kansas Supreme Court.

At issue was the trust established by Eula M. Somers, who died in 1956 (the Trust Code applies even to long-standing trusts). Ms. Somers directed that $100 per month should be paid to each of her two grandchildren, Susan Somers Smiley and Kent Somers, who were then 7 and 5, respectively. When both of them die, the trust is scheduled to terminate and the balance is to be distributed to the Shriners Hospitals for Children.

At Ms. Somers’ death the trust held $120,000. Because the monthly payouts were small, the trust grew to over $3.5 million by 2001.

The Uniform Trust Code permits income beneficiaries (like Ms. Somers’ grandchildren) and remainder beneficiaries (like Shriners Hospitals) to agree to terminate trusts in at least some circumstances. An agreement to terminate the trust may not, however, violate a “material” trust provision.

The grandchildren and the hospital agreed that if they could each receive $150,000 in cash the balance could go to Shriners Hospitals right away. Firstar Bank, the trustee, declined to go along with that agreement because it argued that Ms. Somers’ inclusion of a “spendthrift” clause—prohibiting her grandchildren from assigning any trust income—was a material provision.

The Kansas Supreme Court agreed, and declined to permit termination of the trust. It did, however, direct the trustee to distribute all but $500,000 of the trust’s assets to Shriners Hospital, reasoning that the remaining amount would be plenty to fund the grandchildren’s monthly payments. The court also ordered payment of the grandchildren’s attorneys’ fees of over $55,000. In the first court test of the Uniform Trust Code, as it turned out, not much changed in the law of trust administration. Estate of Somers, May 14, 2004.

Arizona’s legislature first adopted the Uniform Trust Code in 2003, but lawyers in this state almost immediately raised concerns about subtle changes in trust law that would have been brought to the state with the new Code. One of the most common complaints was that the Code might allow beneficiaries to join together to terminate trusts, thereby frustrating the intentions of the original creators of trusts and, in some cases, subjecting trust assets to claims of creditors and possibly even resulting in disadvantageous tax treatment.

Less frequently discussed, but still a concern raised by the Code, is the possible effect on “special needs” trusts established for beneficiaries who receive public assistance from programs like Supplemental Security Income, Medicaid and AHCCCS/ALTCS (Arizona’s Medicaid programs). Because of the controversy, the legislature has repealed the Uniform Trust Code in Arizona; no plans are currently underway to revisit the new law, even with changes that might make it more palatable to its opponents.

Stay up to date

Subscribe to our Newsletter to get our takes on some of the situations families, seniors, and individuals with disabilities find themselves in. These posts help guide you in the decision making process and point out helpful tips and nuances to take advantage of. Enter your email below to have our entries sent directly to your inbox!

Robert B. Fleming

Attorney

Robert Fleming is a Fellow of both the American College of Trust and Estate Counsel and the National Academy of Elder Law Attorneys. He has been certified as a Specialist in Estate and Trust Law by the State Bar of Arizona‘s Board of Legal Specialization, and he is also a Certified Elder Law Attorney by the National Elder Law Foundation. Robert has a long history of involvement in local, state and national organizations. He is most proud of his instrumental involvement in the Special Needs Alliance, the premier national organization for lawyers dealing with special needs trusts and planning.

Robert has two adult children, two young grandchildren and a wife of over fifty years. He is devoted to all of them. He is also very fond of Rosalind Franklin (his office companion corgi), and his homebound cat Muninn. He just likes people, their pets and their stories.

Elizabeth N.R. Friman

Attorney

Elizabeth Noble Rollings Friman is a principal and licensed fiduciary at Fleming & Curti, PLC. Elizabeth enjoys estate planning and helping families navigate trust and probate administrations. She is passionate about the fiduciary work that she performs as a trustee, personal representative, guardian, and conservator. Elizabeth works with CPAs, financial professionals, case managers, and medical providers to tailor solutions to complex family challenges. Elizabeth is often called upon to serve as a neutral party so that families can avoid protracted legal conflict. Elizabeth relies on the expertise of her team at Fleming & Curti, and as the Firm approaches its third decade, she is proud of the culture of care and consideration that the Firm embodies. Finding workable solutions to sensitive and complex family challenges is something that Elizabeth and the Fleming & Curti team do well.

Amy F. Matheson

Attorney

Amy Farrell Matheson has worked as an attorney at Fleming & Curti since 2006. A member of the Southern Arizona Estate Planning Council, she is primarily responsible for estate planning and probate matters.

Amy graduated from Wellesley College with a double major in political science and English. She is an honors graduate of Suffolk University Law School and has been admitted to practice in Arizona, Massachusetts, New York, and the District of Columbia.

Prior to joining Fleming & Curti, Amy worked for American Public Television in Boston, and with the international trade group at White & Case, LLP, in Washington, D.C.

Amy’s husband, Tom, is an astronomer at NOIRLab and the Head of Time Domain Services, whose main project is ANTARES. Sadly, this does not involve actual time travel. Amy’s twin daughters are high school students; Finn, her Irish Red and White Setter, remains a puppy at heart.

Famous people's wills

Matthew M. Mansour

Attorney

Matthew is a law clerk who recently earned his law degree from the University of Arizona James E. Rogers College of Law. His undergraduate degree is in psychology from the University of California, Santa Barbara. Matthew has had a passion for advocacy in the Tucson community since his time as a law student representative in the Workers’ Rights Clinic. He also has worked in both the Pima County Attorney’s Office and the Pima County Public Defender’s Office. He enjoys playing basketball, caring for his cat, and listening to audiobooks narrated by the authors.