On December 13, 2013, Governor Scott Walker signed the New Wisconsin Trust Code (WTC) into law. With an effective date of July 1, 2014, the WTC fundamentally changes the law that governs Wisconsin trusts, both trusts that existed before and are created after July 1, 2014.
With its adoption of the WTC, Wisconsin became the 27th state to enact its version of the Uniform Trust Code. The Uniform Trust Code is a model law designed to modernize the law governing trusts across the country. This new, robust law makes Wisconsin a much more desirable place to administer trusts and provides fantastic planning opportunities for Wisconsin business owners and residents.
The WTC is a default statute, which means that (in most cases) if you do not like what the WTC provides, you can override the WTC in your trust. However, if you do not override the WTC in your trust document, the WTC’s default rules will apply.
As you consider the new WTC and its implications for your business or trust, here are ten things to keep in mind:
1. The WTC Applies to Existing Trusts. The changes created under the WTC apply to most trusts in Wisconsin, and do not negate the effectiveness of existing trusts. Existing trusts remain valid, but are subject to the new rules with only limited and minor exceptions.
2. New Rules Codify Prior Law. The new laws codify (clarify and confirm) many of the unofficial rules that we have been working with in Wisconsin for years. Some parts of the WTC are brand new in Wisconsin but most of the WTC is consistent with prior existing law.
3. Wisconsin “Tweaked” the Uniform Law for Our Own Circumstances. The Uniform Trust Code served as the basis of much of the WTC. The Uniform Trust Code was developed to be implemented across the country, but each state has tailored the Uniform Trust Code to meet its own situation. A working committee spent eight years studying and debating the Uniform Trust Code and its implementation across the country before the Legislature passed the WTC in December 2013.
4. Nonjudicial Settlement Agreements and Representation Create Flexibility. Trustees and beneficiaries of trusts now have more flexibility in dealing with changed circumstances. Prior to the enactment of the WTC, families and trustees often had to go to court to resolve differences regarding a trust. Now under the WTC, families and trustees can stay out of court by using a “nonjudicial settlement agreement” coupled with representation of various parties to address changes that have arisen since the trust was formed.
5. Trustees Have Specifically-Listed Duties. Trustees now have a number of specifically identified duties and responsibilities to the trust beneficiaries. The flip side to the specifically enumerated list of trustee duties is that beneficiaries now have a laundry list of specific rights that trustees have to satisfy. The beneficiaries also have a specified list of information that trustees must provide about the trust and its operations.
6. “Directed Trusts” Create More Flexibility. The WTC creates new abilities to deal with special types of assets and special types of beneficiary situations. By using a “Directing Party” in a “Directed Trust,” you can give special powers over investment and disbursements to specifically identified parties. “Directing Parties” can be given authorities, for example, to operate a business or manage a piece of property held in the trust. A Directing Party can also be given the authority to direct distributions from the trust to its beneficiaries.
7. Prudent Investor Rule Remains. The WTC did not change the “prudent investor rule,” which requires trustees to invest as a prudent person would. Trustees should adopt a written investment policy statement and then follow that statement in managing the trust’s investments.
8. “Certification of Trust” Preserves Owner’s Privacy. The WTC now allows trustees to provide a “certification of trust” to banks, brokers and other third parties. The certification of trust confirms specific information needed by the third parties in dealing with the trustee on behalf of the trust. By giving a certification of trust instead of the entire trust document, the trustee can preserve the family’s privacy regarding the terms of the trust.
9. Trust Protectors are Allowed. The WTC allows for appointment of “Trust Protectors.” Trust Protectors can be given significant authority to supervise the actions of Trustees and Directing Parties. Trust Protectors can also be given authorities to intervene in disputes between trustees and beneficiaries.
10. Basic Use of Trusts Remains. The WTC does not change the fact that trusts will remain important devices in family estate planning. Trusts allow for continued management of assets for beneficiaries who are too young, too immature or need protection from outsiders or from their own bad decisions. Trusts also serve tax planning purposes and can shield assets from claims of creditors.
With its enhancements, the newly robust WTC provides vastly improved planning opportunities for Wisconsin business owners and residents, and makes our state a more desirable place for trust administration.
John A. Herbers is a shareholder at Reinhart Boerner Van Deuren s.c.