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Among other changes, the legislation would make nonjudicial trust modifications easier and limit the risk of liability for fiduciaries who handle specific trust-related tasks.
Three bills drafted in large part by members of the ISBA Trusts and Estates Section Council would amend Illinois trust laws to make them more responsive to modern practices and easier to comply with for everyone involved in the estate-planning process.
A four-year effort
After several years of drafting statutory language, meeting with interested parties, and making revisions to the bills, the proposed legislation is finally ready to move forward in the General Assembly, said former Trusts and Estates Section Chair Mary D. Cascino.
"The last time the bills went through the House, they were held up in the Rules Committee," Cascino said. "Going over a period of four years, we've been working on those bills just trying to get them into acceptable shape so people can agree on them."
House Bill 4662 deals with so-called trust "decanting," Cascino said, and will expand the ways to get nonjudicial modifications and continuances of existing trusts.
House Bill 4663 deals with directed trusts, she said, which limit liability risk for trustees who handle different aspects of trust administration.
House Bill 4664 deals with virtual representation of beneficiaries, and Cascino said it will make it easier for beneficiaries with special needs to obtain adequate help in protecting their interests in the trust.
"These bills are basically a recognition of what is currently in operation today, and they will update the current statutes to better reflect the reality of trust administration," said Cascino, who is senior counsel with Handler Thayer LLP in Chicago.
Along with fellow Trusts and Estates Section member Lyman Welch, Cascino said she has been meeting with interested parties including the Illinois Attorney General's office, corporate fiduciaries, and lawyers from other bar groups to include revisions to the bills that would make the new laws more responsive to the wants and needs of all the major players in trust establishment and administration.
"They were very constructive changes," Cascino said. "For instance, the Attorney General wanted the requirement that they receive notice of any decanting that would pertain to a trust dealing with a charitable beneficiary, and we certainly have been able to accommodate those, and other, suggested revisions."
Decanting: making trust modification easier
The decanting-trusts bill (HB 4662) would allow for nonjudicial modification of trusts in response to circumstances unforeseen at the time the trust was established, Cascino said. The need for these modifications arises in numerous situations, including if a beneficiary develops special needs that did not exist when the trust was created, when changes in tax laws affect the trust, or when there are changes in trustees and other administrators.
"For example," Cascino said, "if we had a directed trust where the trustee appointments had run out and it would be wise to change some of the trustee provisions, you could do that without going to court.…If one of the beneficiaries develops special needs but there were no provisions in the trust when it was created to provide for that, those changes could be relatively easy to accomplish."
Illinois is a state that allows perpetual trusts that are ongoing from one generation of beneficiaries to the next, and Cascino said the relationships of the beneficiaries can become strained over time.
"One of the best things I see from this bill is allowing the trustee to divide the trust into separate trusts for each family line to eliminate squabbling," Cascino said. "This bill makes it quite a bit easier to make those types of changes - you just provide notice to the beneficiaries and you can basically get it done without the expense of going to court."
Directed trusts: limiting liability for fiduciaries
The directed-trusts bill (HB 4663) would allow liability to be divided among various trustees handling different aspects of trust administration. Cascino said many trusts include several fiduciary positions, including managing administrative matters dealing with tax liabilities, handling distribution to protect beneficiaries' interests, and giving advice about investing trust assets.
"These roles are more commonly now being separated out among different trustees because people might have more experience in some areas than others," Cascino said. "Under current law, a trustee maintains liability for each of these positions…but who would want to take on a trusteeship if they're going to be liable for someone else's decisions?"
Under the proposed legislation, Cascino said, trustees could be assigned specific administrative tasks and would be liable only for those fiduciary duties directly assigned to them. The bill also allows for the creation of a "trust protector," which Cascino said would serve as an independent third party to oversee any of these potential problems and make sure they are solved in a manner that protects the interests of the beneficiaries.
Expanding the virtual-representation statute
Sidley Austin LLP partner Lyman W. Welch said the virtual-representation bill (HB 4664) includes "surgical changes" that would expand and clarify a virtual-representation statute that was enacted in Illinois about two years ago.
"It's my impression from practitioners and bankers who approached me with comments and questions about the virtual-representation statute that it has been very well received," Welch said. "But we got a lot of suggestions and input saying that certain changes would help clarify the bill."
As part of the four-year process to draft the current proposed amendments, Welch said the ISBA Trusts and Estates Section Council performed a survey of other states' comparable legislation. More than 80 percent of states have a virtual-representation statute, he said, and most of those statutes are broader and more inclusive than the Illinois law.
"This is all part of the modernization of our trust statutes and it's important to get these bills passed," Welch said.
The numerous amendments to the virtual-representation bill include a provision allowing an "unascertainable beneficiary" to be represented by and bound by another beneficiary with substantially similar interests. Another provision allows the parent of a minor, disabled, or unborn child to represent that beneficiary so long as no material conflict of interest exists between the parent and child. Yet another provision allows for conversion of a trust into a total return trust by agreement of the trustees and all primary beneficiaries, instead of with the trustees, beneficiaries and a presumptive remainderman, as is required under the current law.
"There are a lot of people I've spoken with who asked me to be sure to tell them when this bill passes, because they have current cases on their desks that would benefit greatly from these amendments," Welch said.
Welch said the decanting-trusts and directed-trusts bills have already passed the Illinois House, but the virtual-representation bill has not. However, since a similar bill passed the Senate last year before "running out of time" for consideration by the House, Welch said he remains hopeful the public support of this new bill will allow it to proceed through both houses this session.
Each of these bills is sponsored by state Rep. Emily McAsey of Romeoville, a Democrat from the 85th Representative District, who could not be reached for comment.