Inside Track: Law on Trusts: Wisconsin Adopts a Modified Version of the Uniform Trust Code:

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  • Law on Trusts: Wisconsin Adopts a Modified Version of the Uniform Trust Code

    A new law, effective July 1, 2014, changes trust law in Wisconsin by adopting a modified version of the Uniform Trust Code. In this article, Milwaukee attorney Mark Shiller explains some of the major changes that were enacted into law last week.

    Mark A. Shiller

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    protect piggybankDec. 18, 2013 – Last week, Gov. Scott Walker signed into law 2013 Wisconsin Act 92, which replaces the Wisconsin Trust Code and adopts a modified version of the Uniform Trust Code. Act 92 applies to existing and future trusts, effective on July 1, 2014.

    This new law was the product of a nearly seven-year effort of a joint subcommittee of the State Bar of Wisconsin and the Wisconsin Bankers Association. In working through the Uniform Act, the Wisconsin subcommittee followed the following priorities:

    • Where no strong reason existed to modify the Uniform Act or its specific language, the subcommittee recommended using the Uniform Act’s language;

    • Where the subcommittee felt that existing Wisconsin law was markedly superior, the current law’s approach was retained;

    • Where significant reasons existed to deviate from the Uniform Act or existing Wisconsin law, or where important issues where not addressed appropriately in both, new language was crafted.

    In addition, the subcommittee considered modifications and additional trust-related provisions of other jurisdictions that had adopted the Uniform Trust Code.

    Signing of Act 92

    Legislators and members of the Uniform Trust Code Subcommittee attend last Friday’s signing of Act 92. Legislative sponsors include Joe Sanfelippo (far left), Paul Farrow, and Fred Risser (both behind the governor). The new law is a product of a nearly seven-year effort of the State Bar of Wisconsin and the Wisconsin Bankers Association. Photo credit: Jay Salvo, Wisconsin State Legislature staff photographer.

    While Act 92’s provisions will apply, with some exceptions, to existing trusts as well as those created in the future, the law will become effective on July 1, 2014.

    Thus, practitioners have an opportunity to gain an understanding of the new law through educational opportunities before the effective date.

    What Does the New Law Do?

    An exhaustive treatment of Act 92 is beyond the scope of this article. However, particularly given the controversial nature of the Uniform Act’s approach on certain topics and new provisions included in Act 92, this article highlights the more notable aspects of the new law.

    • Most provisions of the Wisconsin Act can be overridden by drafting. The mandatory provisions include the requirements to create a trust, a trustee’s duty to act in good faith, the authority of a court to modify or terminate a trust and over a few other matters, the effect of spendthrift provisions, and the effect of certain aspects of exculpatory provisions;

    • The ability to use nonjudicial settlements to resolve trust disputes is expanded;

    • Concepts of virtual representation are significantly expanded;

    • Wisconsin testamentary trusts will no longer be subject to continuing court supervision unless it is ordered in response to a petition requesting such supervision. This brings us into line with all other jurisdictions;

    • Pet trusts are specifically permitted;

    • The default threshold for uneconomic trusts is increased to $100,000, which threshold will be indexed for inflation;

    • The law includes a statute regarding decanting of trusts. While IRS regulations are still under consideration, and despite uncertainties associated with how the IRS will view the decanting of trusts, this non-UTC statute may provide significant flexibility in trust planning;

    • Wisconsin did not follow the Uniform Act’s significant expansion of creditor rights. In general, our beneficiary- and settlor-friendly approach remains unchanged;

    • Trusts are presumed revocable, and not irrevocable, when silent on the subject. This is the opposite of current law;

    • Titling an asset in the name of the trust is considered the equivalent of title in the name of the trust’s trustees. This is not necessarily inconsistent with current law, but is at least a clarification of the not uncommon practice of using just a trust’s name in asset titling and beneficiary designations;

    • Act 92 includes a provision related to directed trusts. Trusts may provide for a directing party over a variety of matters, including investments. This technique may be useful for dividing authority, responsibility and liability with the various tasks and obligations that traditionally fall solely to the trustee;

    • The law includes a very detailed statute related to trust protectors. The statute is unique in providing certain presumptions associated with whether certain powers of a trust protector are exercisable in a fiduciary or non-fiduciary capacity; and

    • The default time frame to raise an objection to trust accounts is reduced from two years to one year.

    Mark A. Shillercom mshiller certuslegalgroup Mark A. Shiller (Michigan 1994) is an attorney with Certus Legal Group, Ltd. in Milwaukee. Mark is the vice-chair of the State Bar’s Real Property, Probate and Trust Law Section and a member of the joint subcommittee that produced the language that ultimately became Wisconsin’s version of the Uniform Trust Code. Reach him by com mshiller certuslegalgroup email or by phone at (414) 939-8370.

    Act 92 ultimately included several provisions that were outside the joint subcommittee’s focus. Notably, the new law pulls back from the somewhat controversial (at least from the estate planning and elder law bar’s point of view) estate recovery provisions that had been included in the budget – particularly the requirement that irrevocable trusts were to be considered property of a decedent for estate recovery purposes.

    Changes were also made to Wis. Stat. chapter 702, which covers powers of appointment. Act 92 clarifies the classification of powers of appointment between general and special powers of appointment. It also confirms that Wisconsin law is consistent with the federal tax classification of powers of appointment.

    In addition, the law clarifies that a donee’s creditors will have reduced access to trust assets subject to an unexercised general power of appointment granted to such donee.

    Look for a more detailed explanation of this law and how it will impact your practice related to trusts in future State Bar publications. Educational opportunities will also be available through State Bar of Wisconsin PINNACLE.