Trust code rewritten to favor state administrators

A bill headed to Gov. Scott Walker’s desk aims to drive out-of-state funds into state-based trust accounts, providing a boost to local banks and trust administrators.

The state Senate and Assembly passed the legislation in November. Walker is expected to sign the bill into law soon.

The new uniform trust code would overhaul the existing law, last updated in 1971, and bring Wisconsin in line with other, more trust-friendly, states.

As a result of the antiquated law, many financial institutions were forming trusts for local clients in other states that offered more flexibility, said Adam Wiensch, a partner and member of the estates and trusts practice at Foley & Lardner LLP in Milwaukee. It resulted in increased legal and administrative costs for Wisconsin clients, since they needed to hire trust companies, lawyers and accountants in other states.

“Our trust law was very outdated and very spotty in terms of what it covered,” Wiensch said. “The new law really brings Wisconsin into the 21st Century and creates a lot of opportunities for Wisconsin residents as they set up their estate plans.”

The main reason for a trust is to provide for the management of assets for the benefit of another party. A person may take his own assets and place them into a revocable trust to avoid the probate process, or use an irrevocable trust for beneficiary asset protection.

“In both cases, the new law is important because it gives people a number of tools to achieve what they want to achieve,” Wiensch said.

Banks and trust companies can now offer Wisconsin clients options such as directed trusts, in which some assets are managed by others who have been appointed by the trustee. The trustee role can be divided among several people this way, he said.

Another new option is decanting, in which assets are transferred more easily from an existing trust to a new trust, where changes can be made to the administrative provisions or beneficiaries of a trust.

Having these additional options for a Wisconsin-based trust could increase interest in them and generate business for local firms, Wiensch said.

He had one large matter last year in South Dakota in which the fees ran into the low six figures, he said.

“If we could have done that here, we could have done it for a fraction of (the cost),” Wiensch said.

Wiensch and the Wisconsin State Bar have worked closely with the Wisconsin Bankers Association to change the state’s trust law in three stages — the accounting, investing and administration of trusts — that began in 2000. Trust and estates lawyers, banks and trust companies and elder law lawyers provided input.

The prudent investor law was adopted in 2004, said Victor Schultz, senior vice president, head of personal trust at Prairie Financial Group. Schultz represented the Wisconsin Bankers Association in the effort to change the law in Wisconsin. Principal and income changes were made in 2005. And the work on the administration of trusts legislation currently underway began in 2007.

“The trust code is a much more extensive uniform law than the other ones,” Schultz said.

The changes were driven by The American Law Institute’s release of updated uniform state trust laws beginning in 1992, he said.

These days, as people become more mobile, it is helpful if trust laws from one state are similar to another. Uniformity also makes it less attractive to form a trust in another state, Schultz said.

The law change allows trust companies more flexibility in modifying or having specific rules in Wisconsin, defines a statute of limitations that imposes how long a trustee will have liability for certain actions, provides more specific rules on what information should be given to beneficiaries and lays out the responsibilities of the special trustee or the directed trustee, he said.

As Baby Boomers begin to retire in greater numbers, Schultz expects the next four to five years will see a lot of trust activity

“We’re certainly in a period where there’s more wealth transfer than there ever has been before,” he said. “Large financial institutions, which used to be based in Wisconsin and now are based somewhere else, are moving a lot of their trust administration outside the State of Wisconsin. The hope is that the business will stay in Wisconsin and not migrate to those other states.”

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