The New Illinois Trust Code: What Trustees, Beneficiaries, and Estate Planners Need to Know
The dawn of the new decade has brought with it a new day for revocable and irrevocable trusts in Illinois. As of January 1, 2020, the Illinois Trusts and Trustees Act is no more. The Illinois Trust Code (ITC) now governs the obligations of trust fiduciaries and rights of beneficiaries, and its modifications to prior law have significant implications for trust preparation and administration.
With some nuances as discussed below, the ITC applies to all trusts created before, on, or after its January 1 effective date. As such, estate planners, trustees, and beneficiaries should revisit existing trust documents and establish new trusts with these changes top of mind. Similarly, those charged with administering trusts need to ensure that their notice, accounting, and other procedures comport with the ITC’s requirements.
Here are some of the most impactful provisions of Illinois’ new trust regime:
“Silent Trusts” and Notice to Beneficiaries Under 30
“Don’t trust anyone over 30,” was a refrain from the 1960s, but “don’t provide trust information to anyone under 30” is an option that trust settlors now have at their disposal under the ITC.
By establishing a “silent trust,” a settlor can keep a trustee from disclosing the existence, terms, and assets of a trust to designated beneficiaries until their 30th birthday. This is an attractive tool for those who would prefer that their heirs or other beneficiaries are more mature before learning about a potential windfall they may have coming their way in the future. Estate planners and clients should explore whether a “silent trust” comports with the client’s overall estate planning goals.
Previously, trustees had to provide accountings and information directly to all existing income beneficiaries who were not under a legal disability. Now, a settlor may include a provision directly in the trust instrument in which they:
- waive the trustee’s duty to provide accounts and information about the trust to beneficiaries under 30, and
- nominate or authorize one or more persons to appoint a “designated representative” to whom the trustee must provide required information on behalf of the beneficiary until that beneficiary turns 30.
When that beneficiary’s 30th birthday comes around, or if no designated representative is acting, the trustee must then notify that beneficiary of the existence of the trust, the beneficiary’s right to a copy of the trust instrument, and whether the beneficiary has the right to request trust accountings.
Pre-ITC and Post-ITC Accounting Standards
As noted, the ITC governs all trusts in the state regardless of when created. However, the date a trust was established will play a role in determining which applicable accounting standards a trustee must follow when administering the trust. Specifically, the date of trust creation, whether it is a revocable or irrevocable trust, and the date upon which a trust became irrevocable all factor into how fiduciaries keep the books and provide accountings.
Irrevocable Trusts Established Before 1/1/2020
For trusts that are or became irrevocable before the ITC’s effective date, or for trustees who accepted their role before that date, the ITC incorporates the standard for furnishing accounts found in Section 5/11 of the old Trust and Trustees Act.
This means that trustees of such trusts must provide accountings only to those beneficiaries then entitled to receive or those currently receiving income from the trust estate, or if none, to those beneficiaries eligible to have the benefit of income from the trust estate. The trustee does not need to provide accountings to remainder beneficiaries.
The old accounting standards also apply to trustees of revocable trusts who begin to act before January 2020 until that trustee ceases to act. Any successor trustees must then follow the ITC’s accounting standards.
Irrevocable Trusts Created On or After January 1, 2020
For irrevocable trusts established this year and thereafter, trustees must provide annual accountings to all current mandatory and permissible distributees of principal or income. Unless the trust document provides otherwise, trustees of post-ITC irrevocable trusts must deliver accountings to presumptive remainder beneficiaries, not just those currently receiving or entitled to receive distributions.
The trustee cannot waive this obligation. However, as discussed above, the ITC allows a settlor to establish a “silent trust” through which he or she can direct that the trustee provide accountings to a designated representative for certain beneficiaries rather than the beneficiaries themselves until each such individual turns 30.
The accountings required under the ITC are more detailed and contain more information than under the previous law. For post-ITC irrevocable trusts, the trustee’s annual accounting must include not only inventory, receipts, and disbursements, but also:
- The trustee’s compensation
- The value of all trust assets at the close of the accounting period
- All other material facts relating to the administration of the trust
The ITC includes several changes that should remove complications and obstacles to decanting a trust, including narrowing the circumstances when a trustee must seek court approval.
Under the old law, only an Authorized Trustee could decant a trust without court approval, provided that: (1) there was one or more legally competent current beneficiaries and one or more legally competent presumptive remainder beneficiaries and the trustee sent written notice of the trustee’s decision to them and (2) none of the beneficiaries objected within 60 days after the notice was sent. That is no longer the case. Now, except as otherwise provided in the ITC, an Authorized Fiduciary (more broadly defined) can exercise the decanting power without the consent of any person and without court approval.
While the Authorized Fiduciary must still provide notice of intent to decant to each settlor of the trust, each qualified beneficiary of the trust, and other fiduciaries (unless waived by the beneficiary), notice no longer needs to be given to a qualified beneficiary who is a minor and has no representative.
Importantly, beneficiaries can no longer stop a decanting simply by objecting to it, as was the case under prior law. Now, any beneficiary who wishes to challenge the fiduciary’s exercise of the decanting power must file an application with the court in order for their objection to be heard.
Easier Delegation and Fewer Transactional Notice Requirements For Trustees
Several provisions of the ITC should make life easier for fiduciaries acting in good faith, allowing them to delegate more responsibilities while reducing the need for notice and approval for transactions or investments.
Trustees may now feel more comfortable delegating discretionary powers to an agent, as the agent’s actions or misconduct will not result in liability for the trustee so long as the trustee exercised reasonable care, skill, and caution when selecting the agent clearly established the scope and terms of the delegation, consistent with the trust’s purposes and trust instrument; and periodically reviewed the agent’s conduct to ensure that they are acting within the scope of their authority.
Additionally, trustees no longer have to provide advance notice to beneficiaries before engaging in certain transactions involving the disposition of trust assets. However, the ITC requires the trustee to give notice to all current beneficiaries and all presumptive remainder beneficiaries in the following circumstances:
- Of the trust’s existence, the beneficiary’s right to request a copy of the trust agreement and right to an account (within 90 days of the trust becoming irrevocable or a change in trusteeship)
- when a trust becomes irrevocable (within 90 days of the event)
- appointment of a new trustee (within 90 days of acceptance)
- a trustee’s resignation
- change of trustee caused by the incapacity, death, disqualification or removal of an acting trustee or change in a trustee’s contact information (within 90 days of the event), or
- a change in the trustee’s compensation (notice must be provided in advance).
Some of these requirements may be waived by a beneficiary or eliminated or modified by the settlor in the trust agreement.
Expanded Considerations Under the Prudent Investor Rule
Recognizing that investment decisions, as well as the disposition of trust property, may implicate concerns beyond dollars and cents, the ITC allows trustees to consider social, environmental, and other factors in their investment decisions so long as they follow the prudent investor rule and such considerations are consistent with the trust documents.
Similarly, trustees may now factor in the emotional and sentimental value of a trust asset to some or all beneficiaries, as well as any special relationship the asset has to the trust’s purpose, when making decisions regarding the disposition of such an asset.
Shorter Limitations Periods
For trusts that become irrevocable on or after January 1, 2020, the limitations period for breach of trust claims against the trustee is now two years instead of three years.
Claimants seeking to contest the validity of a trust that was revocable upon the settlor’s death must commence any action within the earlier of two years after the settlor’s death or six months from the date the trustee sends the beneficiaries notice of the trust.
If You Have Questions About The New Illinois Trust Code, We Have Answers
Substantial changes to the law always raise as many questions as they answer. The new Illinois Trust Act is no different. If you need assistance reviewing and revising existing trust instruments, want to establish a new irrevocable or revocable trust, or have concerns about your rights and obligations under the ITC, please contact the estate planning and wealth transfer attorneys at Latimer LeVay Fyock.