Missouri changed its Trust Code this year. Find out how this might affect you.
It is easy to miss, but in 2022 Missouri made changes to its Trust Code (RSMo. Chapter 456). Though not a complete overhaul, the provisions may affect the existing trusts of many clients. In this article, we will examine each of the changes one-by-one.
The Rule Against Perpetuities is an old Common Law rule (meaning it was created by the courts, not necessarily by the legislature) that says that a trust cannot exist forever. More specifically, the Rule states that a trust cannot exist after 21 years after the death of a beneficiary who was alive (or conceived) at the time of the trust's creation. When Missouri adopted the Uniform Trust Code it essentially abolished the Rule Against Perpetuities under RSMo. 456.025 (although there are circumstances when a trust might be subject to the Rule). This means that, conceivably, a trust created in Missouri can exist for a very long time.
Determining whether a trust is subject to the Rule Against Perpetuities is one of those vexing problems usually reserved for first year law students. However, even despite its abolition in Missouri under RSMo. 456.025, it appears that there is still some dispute as to when it may be applicable to a trust. The question as to the Rule's applicability centers around whether a beneficiary's interest in the trust property has vested.
Luckily, the newly-added RSMo. 456.026 seeks to answer this question. To determine whether a trust that is subject to the Rule Against Perpetuities (under one of the limited circumstances provided in RSMo. 456.025) violates the Rule, RSMo. 456.026 lays out a three part test:
Then said beneficiary has a vested interest in the Trust and, thus, the trust does not violate the Rule Against Perpetuities because of that's beneficiary's vested interest.
The Rule Against Perpetuities is a really confusing subject, even to the most experienced practitioners. It really does not come into play with client trusts often. But, because it is the subject of one of the changes to the Missouri Trust code, it's still good for most readers to know.
The Missouri Trust Code contains two types of statutory provisions: "Mandatory Rules" and "Default Rules" (RSMo. 456.1-105). A Mandatory Rule is a statutory provision which cannot be superseded by the Trust Instrument itself, meaning that the Trust Instrument cannot differ from what is provided by statute. A Default Rule, on the other hand, is a statutory provision which controls only if the Trust Instrument is silent on that issue, otherwise the Trust Instrument can differ from the Default Rule under statute.
The new RSMo. 456.1-114 is a Default Rule under the Missouri Trust Code. The statute defines the terms "descendants," "issue," "children," and other similar terms when the Trust Instrument does not provide such definitions. While every Trust Instrument drafted by The Taormina Firm includes a definition of these terms, other estate planning attorneys may forget to include these definitions, meaning that this new statute will control.
Under RSMo. 456.1-114, a child conceived or born of a marriage is presumed to be child of the married couple unless a court determines, via a paternity test, that the child did not come from the marriage.
For unmarried couples who have children, such a child is not considered to be a child of the person who did not give birth to it (presumably the man), unless one of three things occur:
This is a really interesting addition to the Trust Code because it differentiates between married and unmarried couples. For clients going forward, it is going to be important to explicitly define in the Trust Instrument that any step-children, or any children born outside of a marriage context, are explicitly stated as being the children of both Settlors to the Trust (unless they intend otherwise). If these definitions are not included in the Trust Instrument, it could potentially exclude intended beneficiaries from receiving a distribution from the Trust.
The new law revamps the previous RSMo. 456.4-419. This Section is known as a trust "decanting" statute. In essence, Missouri's decanting statute allows a Trustee with the power to distribute income and principal of a trust to one or more beneficiaries to, instead, distribute those assets into a second trust instead of to the beneficiaries directly.
This provision is really useful for Trustees overseeing Irrevocable Trusts. In essence, the rule allows a Trustee to draft a new trust into which the principal and income of the first trust will be decanted without court approval, giving the Trustee, and the Beneficiaries, a lot more flexibility.
Under the new RSMo. 456.4-419, the Trustee may decant the first trust so long as the following requirements are met:
The new RSMo. 456.4-419 also contains special provisions for Special Needs Beneficiaries. The Trustee of the first trust may decant it and distribute the principal and income into a Special Needs Trust (which may be drafted by the Trustee for the benefit of a Special Needs Beneficiary) so long as:
At least 60 days prior to decanting the first trust, the Trustee must notify the Permissible Distributees of the first and second trusts of the Trustee's use of his power granted under the Trust Instrument and RSMo. 456.4-419.
This provision is also an update of the previous RSMo. 456.5-504. The Section falls under Article 5 of the Missouri Uniform Trust Code, which covers creditor's claims and spendthrift trusts.
Both the new and the old RSMo. 456.5-504 state that a Beneficiary's interest in a trust where distributions are subject to the Trustee's discretion precludes creditors from attaching a present or future interest in distributions, even where there is an abuse of the Trustee's discretion. In other words, the Beneficiary's creditors cannot make a claim for repayment against the Trust assets, even if the Trustee is also a Beneficiary of the Trust.
The new RSMo. 456.5-504 adds an additional provision. This provision states that a creditor or other person making a claim against a Beneficiary is entitled to information regarding the trust's assets only if the distributions to the Beneficiary are solely within the discretion of the Trustee. In other words, the Trustee can determine when a Beneficiary receives a distribution from the Trust, a creditor or other claimant may ask for information relating to trust assets.
RSMo. 456.5-505 deals with creditor claims against a Settlor. The new language added to RSMo. 456.5-505 does not change the substantive provisions of the previous statute. Instead, it supplements them by spelling out specific situations in which a Settlor may withstand creditor claims.
Of primary note with regard to this statue generally, is the fact that Settlors of Revocable Trusts are not protected from creditor claims. Moreover, upon the death of a Settlor, the Trustee may, but is not required to, publish notice as to the Settlor's death. This provision is different from those involving the Probate of Wills or Intestate Estates. Under those scenarios, the clerk of the court must file notice of the decedent's death.
This round of changes to Missouri's Trust statutes are hugely important. While they do not change the substance of the code, but they do help to clarify certain situations which may arise during the life the Trust, especially with regard to creditor protections for Settlors and discretionary powers of the Trustee.
If you have any further questions about these changes, please feel free to reach out to Vince Taormina, an experienced and leading estate lawyer in St. Louis.