The New Legal Rights of Your Beneficiaries
In keeping with uniform trust law, Illinois has joined 34 other states in adopting its own version of the Uniform Trust Code known as the Illinois Trust Code (ITC), effective January 1, 2020.
Provisions in this new law will affect how trusts are administered moving forward – namely with regard to the legal rights of your qualified beneficiaries. Some of these default rules could interfere with your estate plan objectives. However, the good news is that you have the power to modify or draft out many of them. It’s important to be aware of the statutes you can change and whether it’s necessary for your unique situation.
One area the ITC could significantly impact concerns the legal rights of your beneficiaries who will have a current or future interest in your trust. These statutes govern the Notices and Accountings that are now required to be given by the trustee to “qualified beneficiaries.” Here’s a brief rundown of what you should know:
WHO IS A QUALIFIED BENEFICIARY?
Qualified beneficiaries include the following:
- One who is currently eligible to receive a distribution from the trust (such as a child)
- One who is eligible to receive a distribution if the current beneficiary dies (such as a grandchild)
- One who is eligible to receive a distribution when the trust terminates.
Your contingent beneficiaries – those who are either eligible to receive a distribution after current beneficiaries die or the trust terminates – are also known as presumptive remainder beneficiaries.
WHAT NOTICES ARE REQUIRED?
Trustees are required to give written notification to all qualified beneficiaries within 90 days of the trust becoming irrevocable. The notice must include the existence of the trust, the beneficiaries right to request a complete copy of the trust, and whether the beneficiary has a right to Accounting.
Other notices required by the trustee is his or her acceptance of the trusteeship (along with name, address and phone number); a change in trustee’s compensation; and the trustee’s resignation.
WHAT ACCOUNTING IS REQUIRED?
Illinois now requires a trustee to disclose more detailed information in the accounting of a trust than previously required. Accounting must occur at least annually. This includes inventory of the trust; the value of current trust assets at the close of an accounting period; receipts and disbursements of the trust; the trustee’s compensation; and any other items related to trust administration.
The trustee is required to notify and give an accounting to all current beneficiaries receiving a distribution of income or principal from the trust. This requirement cannot be changed. The trustee is also required by state law to notify and give an accounting to all presumptive remainder beneficiaries. However, state law does allow you to draft out these accounting requirements to contingent beneficiaries. Now the big question is whether you should.
DISADVANTAGES OF ACCOUNTING TO CONTINGENT BENEFICIARIES
The relational dynamic between your trustee and beneficiaries could play a large part in whether you want to draft out this rule. For instance, consider if your spouse is a trustee and beneficiary of the trust, and your children will receive the remaining trust assets when your spouse dies. Under the new code, your spouse must give accounting to your children every year. Depending on the family dynamic – say, a second marriage with stepchildren- this could make for an uncomfortable situation. It may be in your family’s best interest to draft out this language so trustees can prudently keep contingent beneficiaries out of the loop.
POSSIBLE BENEFITS OF ACCOUNTING TO CONTINGENT BENEFICIARIES
Suspicion, distrust and jealousy are behaviors often associated with rich, spoiled siblings feuding over the family fortune. But this scene can play out in any family regardless of how close they think they are. Place one sibling in full control of administering trust assets who isn’t forthright about their actions, and it could stir up hostility and conflict.
Accounting can help prevent this friction by requiring specific information be delivered in a timely manner. It also helps protect trustees from charges made for a breach in fiduciary duties if beneficiaries believe there was mismanagement or misappropriation of trust assets.
WHAT YOU SHOULD DO
In the spirit of keeping harmony, it’s wise to review all your named beneficiaries in light of your estate planning objectives. If you haven’t done so already, don’t wait to schedule an appointment with one of our attorneys to find out how these changes will affect your estate plan and whether modifications are necessary.
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