After a decade in the making, Illinois enacted the Illinois Trust Code (ITC) effective January 1, 2020. But, as is often the case, as we put the ITC into action, it became apparent that some fine-tuning was needed. The trailer bill to the ITC has now been enacted and is in immediate effect. And good is now better with a number of enhancements to the ITC of note for settlors, trustees, beneficiaries, and their advisors
- Non-judicial settlement agreements (NJSAs). NJSAs are a useful means of resolution of trust issues and the trailer bill makes them more accessible. Under the ITC as originally enacted, in order to use a NJSA to grant a trustee an administrative power or to resolve a question relating to property or an interest in property, it was necessary to first determine that the grant or resolution did not conflict with a material purpose of the trust. Making this determination often called for a legal opinion, which added more complexity and cost to the settlement process. The good news is that the trailer bill eliminates this requirement and NJSAs that grant a trustee power or resolve a question regarding a property interest no longer require a determination that the grant or resolution does not conflict with a material purpose of the trust.
- Trust modifications. Irrevocable trusts at times can use an update. Illinois law has long provided for the authority of a court to modify a trust to achieve the settlor’s tax objectives. The trailer bill expands this authority to include modification of a trust to qualify for government benefits. For instance, if a grandchild with special needs is the beneficiary of a trust created by her grandmother that requires income distributions to the grandchild, the grandchild could be disqualified from receiving valuable government health care benefits. If, however, the trust was fully discretionary, the grandchild may be eligible for government benefits and the trust funds may be used for supplemental expenses to improve her quality of living. The good news is that the trailer bill has expanded the court’s power to modify a trust for these purposes and the court may provide that the modification has retroactive effect.
- Trust information. Beneficiary communication is a cornerstone of effective trust administration and trustees are required to account to and provide information to certain trust beneficiaries (or in certain instances, a person designated to represent a beneficiary). But not all beneficiaries’ interests are the same – some may be limited to a one-time cash gift and others may be recipients of trust income and principal. These are very different interests that led many to wonder whether the trustee is required to inform both the beneficiary of a cash gift and the beneficiary of the entire trust that she has right to a complete copy of the trust? The trailer bill answers this question and clarifies that if the trust agreement so provides, the trustee may fulfill its obligations to the beneficiary of the cash gift by informing her that she has a right to receive the specific portion of the trust with the provisions reflecting her gift.
These are just a few of the trailer bill highlights. There are more details related to each of these changes and there are additional changes not noted here. The good news here is that Levenfeld Pearlstein Fiduciary Advisory Services is a resource for you on all matters related to the trailer bill and the creation and administration of trusts to fulfill the settlor’s intention, manage risks for trustees and protect beneficiaries interests.