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    Relating to


    June 9, 2008 Current as of December 5, 2008

John M. Cannel, Esq., Executive Director


    153 Halsey Street, 7th Fl., Box 47016

    Newark, New Jersey 07101


    (Fax) 973-648-3123


    Web site:



The Uniform Trust Code (2000 version) [UTC 2000, rev’d and am’d 2005] was the product of

    several years of drafting and was motivated by the objective of providing as comprehensive

    Trust Code for all states, as it was the view of several prominent bodies that the law of trusts was

    thin in some states, non-uniform in certain matters, and scattered throughout statutory law. The

    UTC 2000 primarily was modelled upon the California Trust Code, deemed the best state rdcodification of trust law, and the Restatement (3) of Trusts. Twenty-one states have enacted 1UTC 2000. New Jersey has not adopted the Act. Since 2000, the UTC has undergone several

    revisions and amendments. The current version is the amended and revised UTC 2005.

    This Final Report and Recommendations is set forth in two parts. The First Part is a general

    description based on a reading of the Official Text and secondary literature. It highlights main

    features of UTC 2005 that the drafters, the reporter and expert commentary deemed significant

    changes from the predecessor statute. The UTC Official Text and its commentary run 179 pages.

    The Second Part of this Final Report and Recommendations summarises the work of the New 2Jersey ad hoc Committee on the Uniform Trust Code. The Committee is comprised of New Jersey’s leading experts in the field of Trusts and Probates. During a several year period, the

    Committee studied the Official Text, modified Official Text language, deleted non-conforming

    sections, repealed New Jersey law rendered obsolete by the Uniform Trust Code, and prepared a

    summary of their changes that is reproduced here.

    In addition, the Committee has worked with the Office of Legislative Services, and the New

    Jersey version is prepared in bill form to the satisfaction of the Committee. The New Jersey Law

    Revision Commission has been informed of the activities of the ad hoc Committee, has reviewed

    the Draft Final Bill and endorses without reservation or qualification the work product of the ad

    hoc Committee. Consequently, the New Jersey Law Revision Commission recommends that the

    New Jersey Legislature enact the New Jersey Uniform Trust Code.

Part One: General Description

    Select Background Issues of UTC 2000

    1. Drafting Process. The drafting committee consisted of the Uniform Law Commissioners; the

    reporter was David M. English, the W.F. Fratcher Missouri Endowed Professor of Law at the

    University of Missouri-Columbia. Major groups participating in the process included: the

     1 Data based on information obtained from the “The National Conference of Commissioners on Uniform State

    Laws” website last visited June 9, 2008, found at There are four 2008 introductions.

    2 The members of the ad hoc Committee are: Richard Lert (Chair), Michael Backer, Andrew DeMaio, Glenn Henkel,

    Richard Kahn, Robert Pless, Warren Racusin, and Jordan Weitberg.

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American Bar Association; the American College of Trust and Estate Counsel; the American

    Bankers Association; and the California and Colorado State bars.

    2. Reasons for the Code. The main reason was the growing use of trusts, particularly in the estate planning area but also developments of commercial trusts, and the recognition that state law

    taken as a whole was too thin to support the structure of trusts. While the primary source of trust law in most states is the Restatement of Trusts, the drafting committee found gaps in the law and failure to provide guidance on several practical issues. In addition, there are uniform related uniform acts that, if adopted, may be repealed and/or integrated, if a state were to adopt the UTC. 3. Related Uniform Acts. Examples of related Uniform Acts on trusts and related subjects are:

    ? Uniform Prudent Investor Act

    ? Uniform Probate Code [Article VII would be repealed]

    ? Uniform Trustee Powers Act

    ? Uniform Common Trust Fund Act

    ? Uniform Custodial Trust Act

    ? Uniform Management of Institutional Funds Act

    ? Uniform Principal and Income Act

    ? Uniform Statutory Rule Against Perpetuities

    ? Uniform Testamentary Additions to Trusts Act

New Jersey has adopted several of the above: Uniform Prudent Investor Act, Uniform Probate

    Code, Uniform Management of Institutional Funds Act, Uniform Principal and Income Act, and

    the Uniform Statutory Rules against Perpetuities. In addition, New Jersey statutory law on trusts and related subjects is enormous. Therefore, a careful examination of how the UTC would affect

    New Jersey Law is a major undertaking, and will require substantial study and time.

    4. Relationship to the Restatement of Trusts. The UTC 2000 was drafted in close coordination rdwith the Restatement (3) of Trusts and with the revision of the restatement of Property: Wills

    and Donative Transfers. Consequently, the UTC 2000 may be described loosely as a

    codification of a majority of provisions of the Restatement. In the view of the Reporter, this

    procedure is superior to the Restatement, as it is binding law if enacted in the state and provides clarity to practitioners in the field. Having said this, the UTC 2000 does not displace the common law of trusts but supplements it.

    Select Key Issues of UTC 2000

    1. Scope. The UTC 2000 applies only to express trusts and does not apply to constructive trusts or other judicially crafted trusts that are not express trusts. An express trust is a trust created by the express intention of a settler having the capacity to create that trust and having adequate property interests to fund it. The purpose may be charitable or noncharitable. ? 102. Also see ? 401 for methods of creating trust. An interesting question raised by the UTC, as it applies to

    commercial trusts, is whether a trust is a gratuitous transfer or a business deal, that is, a contract. Charitable trusts certainly are donative transfers [gifts], but the varieties of commercial trusts do

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    3not fall within that category. Examples of commercial trusts are pension trusts, investment trusts [mutual funds], real estate investment trusts [REITS], oil and gas royalty trusts and asset

    securitization. A 1997 estimate states that more than 90% of money held in trust in the United 4States is held in commercial trusts as opposed to personal trusts.

    2. Default Provisions. The entire UTC 2000 consists of default statutory provisions that may be

    overridden by the Trust instrument. The only exceptions for mandatory rules are set forth in ?

    105. They are:

    ? The requirements for creating a trust

    ? The rights of third parties in their dealings with the trustees

    ? The power of the court to take certain actions, such as to remove a trustee

    ? The trustee’s obligation act in good faith, in accordance with the purpose of the trust, and

    to administer the trust for the benefit of the beneficiaries

    ? Limits on the settlor’s ability to waive the duty to keep beneficiaries informed of the

    existence and on the administration of the trust

3. Nonjudicial Settlement Agreements. UTC 2000 encourages out of court settlement of contests.

    “Interested Persons” may by unanimous consent enter into binding agreements covering a range

    of matters that a court would have the power to approve. He list of issues set forth in ? 111(d)

    that may be resolved is non-exhaustive. For example, “interested persons” may determine the interpretation or construction of trust terms; transfer the trust’s principal place of administration;

    and determine the resignation or appointment of a trustee. These Nonjudicial settlements raise

    the question of representation as sometimes beneficiaries may be incapacitated, not yet born or

    unascertained. To resolve this problem, the UTC 2000 has incorporated doctrines of virtual

    representation [a not yet born beneficiary represented by another beneficiary with a similar

    interest], representation by fiduciaries, and appointment of a guardian ad litem. ? 303 deal with

    representation issues.

    4. Principal Place of Administration. This issue is important as it affects which state’s income tax applies to the trust and determines which court has primary jurisdiction over the trust. The

    problem arises in the context of trustees, advisors, operation facilities being located in different

    jurisdictions. UTC ? 108(a) takes the view that a provision in the trust designating the place of

    administration is valid provided the trustee’s principal place of business is located in the

    designated jurisdiction, or a trustee is a resident of the designated jurisdiction, or all or part of the

    trust’s administration occurs in the designated place. ?108 also contains rules for determining the

    place of administration where the trust instrument has failed to make a designation.

    5. Uneconomic Trust. A trustee without a court order may terminate a trust if the value of the

    trust property is insufficient to justify the cost of administration. The UTC 2000 uses a bracketed

     3 Excluded also from the ambit of commercial trusts are the stream of governmentally created “trusts”, the deed of

    trust to transfer real property, and reference to trusts in bankruptcy proceedings.

    4 John H. Langbeinn, The Secret Life of The Trust: The Trust as an Instrument of Commerce, 107 Yale L.J. 165, 166


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    figure of $50 000, but states are free to raise the amount, for example, to $100,000. This issue is noted because the Commission approved the Uniform Prudent Management of Institutional Funds Act that contains in ?6 a provision permitting a trustee to remove a restriction if the fund’ value is less than $100,000. The UTC would add on the additional authority to terminate the trust and distribute the property.

    6. Revocable Trust Presumption. The UTC 2000 reverses the common law assumption that trusts are irrevocable. ?602(a). The reversal follows the current trend of most common trusts. The settlor may make the trust irrevocable by providing for that provision.

    6. Duties and Powers of Trustee. These duties and powers are delineated in detail in ??801 through 817. As noted previously, these provisions may be overridden by specific terms in the trust, except for the duty to inform, duty to act in good faith and requirement to act in accordance with the purposes of the trust and for the benefit of the beneficiaries.

    7. Remedies for Breach of Trust. These provisions are set forth in ?? 1001 through 1009. According to Professor English, “The measure of damages for breach of trust is designed to restore the beneficiaries to the position they would have been in had the breach not occurred. But is also serves another purpose - to prevent the trustee from profiting from the breach. Consequently, under the Code the trustee is liable for the higher of the profit made by the trustee or harm caused to the beneficiaries.”?1002(a).

    8. Dealing with Third Persons. UTC 2000 follows the theory that commercial transactions between trustees and third parties [that is, persons other than trustees or beneficiaries] should be treated like any commercial transaction to lubricate the flow of commerce and advance the purposes of the fund. If stricter standards applied, third persons would not take the increased risk of dealing with a trust and take its business elsewhere.

    9. Creditor’s Claims; Spendthrift and Discretionary Trusts. First, the UTC 2000 allows for spendthrift provisions provided the provision restrains the voluntary and involuntary transfer of the beneficiary’s interest. ?502(a). In this circumstance, a creditor cannot reach the interest of the beneficiary until the distribution is received by the beneficiary. Exceptions to spendthrift provisions are set forth in ?503, the most significant, though most obvious, is the unenforceability of a spendthrift provision against a claim of the State or federal government pursuant to law. Significantly, the UTC 2000 permits creditors of the settlor to reach assets of the trust when the settlor is designated a beneficiary of the trust. “Consequently, the drafter’s rejected the approach taken in Alaska and Delaware allowing a settlor to take a beneficial interest immune from creditor claims. NJ Law in this area is consistent with the UTC 200. E.g.,

    Estate of DeMartino v. Division of Medical Assistance and Health Services, 373 N.J. Super 210

    (App. Div. 2004), certif. denied, 182 N.J. 485 (2005)(rejecting claim of estate trustee that assets

    of testamentary trust were beyond reach of state to recover Medicaid paid benefits for deceased spouse since at time of creation of trust, decedent had sufficient interest in the trust assets though that interest fell short of legal and beneficial ownership).

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Part Two: Ad Hoc Committee Commentary

    The general review is secondary to the explanations and commentary of the ad hoc Committee setting forth its reasons to modification of the Official Text. It is of pre-eminent importance for understanding the New Jersey Uniform Trust Code. The Commentary is taken verbatim from the reports of the Committee members.




    The Uniform Trust Code (2000) is the first national codification of the law of trusts, promulgated by the National Conference of Commissioners on Uniform State Laws (NCCUSL), organized to provide states with non-partisan, well-conceived and well-drafted legislation that brings clarity and stability to critical areas of state statutory law.

The following is a summary of the work of an ad hoc Committee of New Jersey lawyers who are

    either Fellows of the American College of Probate Counsel, the Real Property Probate and Trust Law Section of the New Jersey State Bar Association, or both. The Committee members who worked on the legislation are Michael Backer, Andrew DeMaio, Glenn Henkel, Richard Kahn, Richard Lert, Robert Pless, Warren Racusin, and Jordan Weitberg. Each article was assigned to Committee member who acted as reporter. Each report was then reviewed by the entire Committee. The Uniform Trust Code was primarily intended to provide statutory and policy guidance for the many jurisdictions that do not have a well developed body of case law. In the case of New Jersey, there is a well developed body of State law, which nevertheless has gaps.

    The Committee adhered to existing case law, as known, deviating only in cases where there were sufficient gaps in the law or there were strong policy grounds for a reversal of the law. The primary stimulus to the Commissioners’ drafting of the Uniform Trust Code was the greater use

    of trusts in recent years, both in family estate planning and in commercial transactions, both in the United States and internationally. This greater use of the trust, and consequent rise in the number of day-to-day questions involving trusts, has led to a recognition that the trust law in many States is thin. It has also led to a recognition that the existing Uniform Acts relating to trusts, while numerous, are fragmentary. The Uniform Trust Code will provide States with precise, comprehensive, and easily accessible guidance on trust law questions. On issues on which States diverge or on which the law is unclear or unknown, the Code, for the first time, provides a uniform rule as a starting point for further consideration. The Code also contains a number of innovative provisions.

    Default Rules: Most of the Uniform Trust Code consists of default rules that apply only if the terms of the trust fail to address or insufficiently cover a particular issue. Pursuant to 3B:31-5, a drafter is free to override a substantial majority of the Code’s provisions. The important exceptions are set forth in 3B:31-5(b).

    Innovative Provisions: Much of the Uniform Trust Code is a codification of the common law of trusts. But the Code does contain a number of innovative provisions. Among the more significant

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are specification of the rules of trust law that are not subject to override in the trust’s terms

    (3B:31-5), the inclusion of a comprehensive article on representation of beneficiaries (Article 3),

    rules on trust modification and termination that will enhance flexibility (3B:31-31 through

    3B:31-38), and the inclusion of an article collecting the special rules pertaining to revocable

    trusts (Article 6).




Article 1 of the UTC contains definitions and general provisions. Within those definitions and

    provisions, however, lie some of the UTC's key policy issues. The definitions within 3B:31-3

    lend substance to many of the provisions throughout the trust code. For example, the definition

    of "qualified beneficiary" determines which trust beneficiaries are entitled to notice of certain

    actions and whose consent is required for others.

3B:31-11 expands this definition by providing that certain other persons (including the Attorney

    General with respect to a charitable trust) have the same rights as a qualified beneficiary. 3B:31-

    5 states that most of the UTC’s provisions are default rules, which may be modified or negated

    by the drafter of the trust instrument. Some UTC provisions, however, are mandatory, and

    therefore cannot be modified through a trust instrument. For example, 3B:31-5(b)(11) provides

    that the time periods for commencing a judicial proceeding concerning a trust may not be altered

    by the terms of a trust instrument. 3B:31-5(b)(8) provides that a trust agreement may not modify

    the duty of a trustee to respond to a beneficiary’s request for information regarding the trust,

    provided that the beneficiary has reached the age of 35 and is a qualified beneficiary as defined

    in 3B:31-3.

3B:31-7 and 3B:31-8 establish rules regarding the governing law of a trust and the administrative

    situs (principal place of administration) of a trust. As a general rule, the drafter of a trust

    agreement may designate which state’s law shall govern and in which jurisdiction the trust shall

    be administered. There are, however, exceptions. 3B:31-8 also sets forth a procedure for

    changing the situs of a trust.

    3B:31-11 provides statutory authority for the nonjudicial settlement of a trustee’s accounts and

    other matters related to trust administration. This provision permits the efficient and economical

    administration of a trust, particularly when there are no disputes among the trustee and the


The definitions and general provisions within Article 1, together with the later provisions of the

    UTC, create certainty and clarity within the field of trust law in New Jersey.

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This article should not be enacted. It relates to the role of the courts in the administration of

    trusts, jurisdiction of trustees and beneficiaries, subject matter jurisdiction and venue, all of

    which matters are preempted in New Jersey by the Rules Governing the Courts of New Jersey.




This article deals with representation of beneficiaries, both representation by fiduciaries

    (personal representatives, trustees, guardians, and conservators), and what is known as virtual

    representation. Representation is a topic not adequately addressed under the trust law of most

    States. Representation is addressed in the Restatement (First) of Property ?? 180-186 (1936), but

    the coverage of this article is more complete.

3B:31-17 is the introductory section, laying out the scope of the article. The representation

    principles of this article have numerous applications under this Code. The representation

    principles of the article apply for purposes of settlement of disputes, whether by a court or non-

    judicially. They apply for the giving of required notices. They apply for the giving of consents to

    certain actions.

3B:31-18 through 3B:31-21 cover the different types of representation. 3B:31-18 deals with

    representation by the holder of a general testamentary power of appointment. (Revocable trusts

    and presently exercisable general powers of appointment are covered by 3B:31-48, which grant

    the settlor or holder of the power all rights of the beneficiaries or persons whose interests are

    subject to the power). 3B:31-19 deals with representation by a fiduciary, whether of an estate,

    trust, conservatorship, or guardianship. The section also allows a parent without a conflict of

    interest to represent and bind a minor or unborn child. 3B:31-20 is the virtual representation

    provision. It provides for representation of and the giving of a binding consent by another person

    having a substantially identical interest with respect to the particular issue. 3B:31-21 authorizes

    the court to appoint a representative to represent the interests of unrepresented persons or persons

    for whom the court concludes the other available representation might be inadequate. The

    provisions of this article are subject to modification in the terms of the trust. See 3B:31-5.

    Settlors are free to specify their own methods for providing substituted notice and obtaining

    substituted consent.




Article 4 deals with how a trust is validly created, modified and terminated. In particular, the

    rules on when a trust may be terminated or modified are a significant addition to this sometimes-

    murky area of New Jersey law. The changes include procedures for terminating a trust whose

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    material purposes have been accomplished and procedures that allow a trust to be terminated irrespective of material purpose where the settlor and all trust beneficiaries consent.

    The rules on modification and termination generally are designed to carry out the settlor’s intent consistent with the purposes of the trust, while giving beneficiaries flexibility where changes would otherwise be limited to the express terms of the trust that are often non-existent.

    3B:31-22 through 3B:31-30 deal with the creation of a trust and the purposes for a trust. The New Jersey committee decided not to adopt UTC 3B:31-28 that allows a trust to be created based on an oral declaration without a trust instrument, and added a clause to 3B:31-22 providing that a written instrument is required in order to create a trust. 3B:31-23 states the requirements for creation of a trust, including the requirement that the same person not be the sole trustee and the sole beneficiary. If the sole trustee is also the sole beneficiary of the income interests, then a different person or persons must hold the remainder interests or the trust will not be valid.

    3B:31-24 recognizes the validity of trusts created in other jurisdictions provided the requirements of the statute are met, including the requirement that the trust be in writing. As for trust purposes, under 3B:31-25 a trust generally may be enforced if its purposes are lawful, not contrary to public policy, and possible to achieve. Under 3B:31-27 a trust induced by fraud or duress is not valid. 3B:31-26 addresses valid purposes for charitable trusts and 3B:31-30 addresses situations where non-charitable trusts without ascertainable beneficiaries are valid. 3B:31-29 addresses trust for the care of animals. Although New Jersey has an existing statute that addresses trusts for animals, the New Jersey committee recommends the adoption of the UTC provision because the UTC provision is broader and to make our statute consistent with the uniform law.

    3B:31-31 through 3B:31-38 deal with the modification and termination of a trust. These provisions deal with the purposes for modification and termination and the procedures for modification and termination. The general provision is contained in 3B:31-31, which summarizes the grounds on which a trust may be terminated and specifies which persons may bring an action to terminate a trust.

    3B:31-32 describes the circumstances when a non-charitable trust may be compelled by the beneficiaries, with or without the consent of the settlor. If the settlor and all beneficiaries consent, a non-charitable trust may be modified or terminated even if doing so is inconsistent with a material purpose of the trust. Without the settlor’s consent, and only with the consent of all the

    beneficiaries, the trust may be modified or terminated only if the court concludes that continuance of the trust is not necessary to achieve any material purpose of the trust. Significantly, a spendthrift provision in the terms of the trust is not presumed to be a material purpose of the trust, though an interested party will be able to offer proof of material purpose.

    Under 3B:31-33, a court may modify the administrative or dispositive terms of a trust if doing so will further the purposes of the trust. 3B:31-34 addresses modification or termination of a charitable trust and 3B:31-35 addresses modification or termination of an uneconomical trust. 3B:31-36 provides for the reformation of a trust to conform to a settlor’s probable intent and is

    designed to be consistent with New Jersey’s probable intent doctrine as it applies to trusts under N.J.S.A. 3B:3-33.1(b). 3B:31-37 permits modification to achieve a settlor’s tax objectives,

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consistent with existing New Jersey law. 3B:31-38 provides for the combination of two or more

    trusts into a single trust and the division of a single trust into two or more trusts, provided the

    requirements of the section are met. This provision is similar to existing New Jersey law under

    N.J.S.A. 3B:14-23(r), and the New Jersey committee modified the UTC section to conform to

    the existing statute.




Article Five of the Uniform Trust Code deals with spendthrift provisions in trusts. This Article

    has generated the most interest and controversy from States that have considered the UTC.

    Spendthrift clauses are generally enforceable in NJ except for the self settled trust. To the extent

    that the UTC proposed statutory procedural changes, we suggested that, consistent with current

    NJ Practice, procedural issues be reserved for the NJ Court rules.

Article 501 recites the general rule that “spendthrift provisions” (e.g., trust language that

    prevents a beneficiary or the beneficiary’s creditors from attaching the trust corpus) are to be

    honored. There are a variety of situations in New Jersey where there are statutory and/or

    judicially recognized protection is afforded to a trust. Accordingly, the proposed language was

    modified to clarify that existing law, (See N.J.S.A. 2A:17-50, et seq. which is a statutory

    restriction on an ability of a creditor to attach an income stream) continue to override the terms

    of the UTC rules. Moreover, the intention of the revision to the language is to protect other

    existing provisions such as, N.J.S.A. 25:2-1, et seq. (protection from attachment in the case of a

    self-settled Trust that is a Qualified Retirement Account); N.J.S.A. 17B:24-6 (the inability of a

    creditor to attach proceeds of life insurance policies); N.J.S.A. 17B:24-7 (the inability of

    creditors to attach annuity proceeds); N.J.S.A. 17B:24-8 (the inability of creditors to attach

    health and disability insurance benefits); and, N.J.S.A. 17B:24-9 (the inability of creditors to

    attach proceeds of group insurance policies).

3B:31-40 addresses both involuntary alienations, as well as voluntary alienations, and is

    consistent with a substantial body of New Jersey case law which has been acknowledged in our

    state for more than 100 years. Because the proposed statute seems to restrict the application of

    the Spendthrift Provisions to the beneficiary clarification was provided, as the law should protect

    trustee to apply a spendthrift provision to an involuntary alienation. N.J.S.A. 3B:11-1 is the

    statute which now applies to spendthrift trusts but is limited to self settled trusts. Under New

    Jersey law a spendthrift provision is a material provision of a trust. Heritage Bank North, N.A. v.

    Hunterdon Medical Center, 164 N.J.Super. 33 (App.Div. 1978). Finally, current New Jersey law

    authorizes a party to disclaim notwithstanding any limitation in the nature of a Spendthrift

    Provision. See, N.J.S.A. 3B:9-11.

The Uniform Trust Code 3B:31-41 provides that there are certain creditors (i.e., “exception

    creditors”) that are can attach a Trust with a spendthrift provision. Other “exception creditors” in

    the UTC would be (i) child support; (ii) a spouse; (iii) a former spouse who has a judgment for

    support or maintenance; (iv) a judgment creditor who has provided services for the protection of

    a beneficiary’s interest: and (v) governmental claims. Our proposed suggestion for 503 is a

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