Now that the Massachusetts Uniform Trust Code is in effect, I will be posting a series of articles detailing some of the law’s key provisions. This is the first in that series.
On July 8, 2012, the Massachusetts Uniform Trust Code (MUTC) was signed into law by Governor Deval Patrick and took effect immediately. The new law ushered in some important changes related to trust administration and the rights of beneficiaries.
This series will explore some of those developments. But first, some background for those not familiar with trusts, their purpose, or how useful they can be as part of an overall estate plan.
The concept behind trusts is simple, but the definition can be confusing. A trust, by definition, is the separation of legal title from equitable title of property, creating a fiduciary relationship between the holder of the legal title (the trustee) and the holder of the equitable title (the beneficiary).
What this means in plain English is that the trust is the legal owner of the property, but it is the beneficiary who gets to enjoy it. The trustee is responsible for managing, investing, and distributing the property on behalf of the beneficiary or beneficiaries. Since the trustee is entrusted with these important responsibilities, the trustee has a duty to act in the best interests of the beneficiaries, and not in their own personal interests. This is the essence of a fiduciary relationship.
Contrary to popular belief, you don’t have to be wealthy to take advantage of trusts. Trusts can be valuable tools for protecting your property, preserving your privacy, and providing for your loved ones. People’s goals vary. Depending on your goals, you can set up and manage a trust during your lifetime, reserving the right to update or terminate the trust at any time. This is called a revocable living trust.
You can also create a trust that effectively transfers any rights you had in the property over to the trustee, leaving you only with the benefits of certain trust income, but no control over the trust terms, and no right to the trust property. These are called irrevocable trusts, and are very useful for reducing estate taxes, protecting assets, charitable estate planning and qualifying for certain government programs.
Development of the law of trusts
Trust law has developed over time, mostly as a result of court decisions that carved out standards for interpreting such documents in a given jurisdiction. This makes trust law a creature of common law. And as is typical in a common law system, the standards and rules used to guide trust law vary from state to state.
But it has become increasingly clear that trusts are being utilized more and more in recent years, both for estate planning and for commercial purposes. As a result, the Uniform Trust Code (UTC) itself was designed as a model for states to use in codifying their trust laws. This is considered an important development: the UTC is an effort to make the law of trusts more uniform from state to state, with the hope of simplifying and facilitating the creation, administration and interpretation of trust documents.
Enactment of the Massachusetts Uniform Trust Code
Massachusetts is one of 25 states to have enacted some version of the Uniform Trust Code. The Massachusetts Uniform Trust Code applies to all express trusts created by individuals who transfer their property to a trust for the benefit of a beneficiary. While there are some specific sections of the code that only apply to trusts created after the effective date of the MUTC (July 8, 2012), the code generally applies to all express trusts – no matter when they were created.
One great attribute of trusts is that they provide flexibility for those creating their estate plans. This will not change with the enactment of the MUTC – with certain exceptions, the specific trust terms continue to control how the trust functions. But if the trust does not address a particular issue, or if it does not address an issue clearly, the MUTC provides for some default rules.
Enactment of the Massachusetts Uniform Trust Code should make it easier to determine, interpret, and apply the law of trusts in the Commonwealth of Massachusetts. This should result in a greater understanding of trusts, not only for those creating them, but for those administering and benefiting from them as well.
Contact my office if you are a Massachusetts resident interested in learning more about incorporating trusts into your estate plan.