New Trust Code Opens Opportunity for Change

(Originally published in Office Hours)

The Ohio Trust Code, adopted in January 2007, has driven major changes in the way trusts are managed. As a result, individuals setting up or managing trusts now have several issues to consider.

The two most dramatic changes created by the new code cover:

Access to information

In the past, state law offered little clear definition around the specific types of information trust beneficiaries were entitled to receive. As a result, trustees had little incentive to be forthcoming about the affairs of a trust.

With the new trust law, certain classes of beneficiaries have the right to receive copies of the trust documents, as well as annual statements of trust investments and activities. Upon such a request, the trustee must determine whether the beneficiary is entitled to such information.

Notice to beneficiaries

Prior to the new Trust Code, Ohio law was unclear about the extent to which trustees had to communicate with beneficiaries. Now, when a trustee begins to serve under an irrevocable trust -- or when a successor trustee replaces the original grantor or trustee – he or she must provide notice to all beneficiaries of the trust within 60 days.

Also, upon the death of the grantor, any person who has a beneficial interest in the trust must now be alerted.

In light of these changes, trustees and individuals establishing trusts have some new opportunities to consider. They include the following:

Separate trusts for charitable gifts

An individual should now create a separate trust to make a charitable gift. By separating the charitable gift into a separate trust document, confidentiality of the remaining estate plan and the remaining beneficiaries is protected because they are contained in another trust document.

The charity would be entitled only to information concerning the trust document that creates the beneficial interest.

Management of a problem beneficiary

In a similar fashion, if an individual anticipates that there may be a problem with a particular beneficiary, he or she may chose to limit the access to information concerning the overall estate plan by creating a separate trust to deal with the problem beneficiary.

Limited notice to remote beneficiaries

The Ohio Trust Code allows the creator of the trust to draft limitations to the notice requirements for remote or contingent beneficiaries. However, notices to immediate beneficiaries cannot be waived by language in the trust document.

Protection against challenges

Discretionary authority given to a trustee can now be re-examined under the Ohio Trust Code. By using varying types of discretionary language in the grant of authority to a trustee, an individual can control the ability of a beneficiary to challenge the decision making of the trustee.

Changes to trust administration resulting from Ohio’s adoption of the new trust code make it advisable for a trustee to review a trust being administered.

Such a review could reveal outcomes that would no longer be satisfactory. It could also reveal opportunities to better accomplish an individual’s estate planning goals.