“None of Your Business” Is No Longer An Appropriate Response

Let’s say a married couple indicates in their estate plan that on the first of their deaths, the predeceasing spouse’s assets will be held in a trust. During the surviving spouse’s lifetime, they are the beneficiary and trustee of the trust, and once the surviving spouse passes away, the remaining trust assets will then be passed along to the couple’s children. Under prior Illinois law, the surviving spouse was not required to give notice or accounting to the children during that spouse’s lifetime. Many surviving spouses would have responded to the children’s questions about the trust with something along the lines of, “It’s none of your business.” However, on Jan. 1, 2020, that changed.

The Illinois Trust Code

Beginning Jan. 1, 2020, the new Illinois Trust Code (ITC) replaced the previous Illinois Trusts and Trustees Act. Among the changes, the most important involve the rights of remainder beneficiaries to notices and accountings – but it also gives proactive clients new tools to customize trusts and modify or avoid some of the new notice and accounting requirements.

Notices and Accountings

The ITC requires a trustee to send to each “qualified beneficiary” (both current and presumptive remainder beneficiaries) of a trust, within 90 days after the trust becomes irrevocable, of the trust’s existence, the beneficiary’s right to request a copy of the trust instrument, and whether the beneficiary has a right to trust accountings. (760 ILCS Section 3/813.1(b)(1).) (Note that every provision of the Illinois Trust Code is either a “default rule,” which a grantor can override by the terms of the trust instrument, or a “mandatory rule,” which the grantor cannot override. A default rule applies only when the terms of the trust instrument are silent, while a mandatory rule supersedes the terms of the trust instrument.)

Under prior Illinois law, remainder beneficiaries had no right to information about the trust unless provided in the trust instrument. In the case of the example above, the surviving spouse would be required to send a notice to the children within 90 days after the creation of the trust.

The ITC also adds a default rule that requires a trustee to send an annual trust accounting to all current and presumptive remainder beneficiaries. (760 ILCS Section 3/813(b)(4).) This trust accounting must describe the assets, receipts and disbursements of the trust. (760 ILCS § 3/103(38).).

Planning Opportunities

The ITC makes it possible for the creator of a trust to “opt out” of the new default rules regarding accountings and notices to remainder beneficiaries, but this requires foresight and proactive action. In the example above, the married couple could amend their estate plan to affirmatively state that their children will not have the right to receive trust accountings while one of them is still alive . However, it may be too late for the surviving spouse to make this change if they do not do it while they are both still alive.

Additionally, the ITC provides that a beneficiary has a 3-year period after receiving a trust accounting to sue the trustee; any lawsuit is barred after that. Some clients may want to shorten this period in order to reduce the window for potential lawsuits.

The requirement to provide notice to all trust beneficiaries 90 days after a trust becomes irrevocable, as well as the other mandatory provisions of the ITC, can’t be changed by amending the trust instrument. However, the ITC creates a new concept under Illinois law called a “designated representative.” (760 ILCS Section 3073.) A designated representative is an individual who has the authority “to represent and bind” a beneficiary of a trust. Notices or accountings that would be required to be sent to the beneficiary may instead be sent to the beneficiary’s designated representative. Several restrictions apply – the same person may not act as both a designated representative and as a trustee. Also, no designated representative may act for a current beneficiary age 30 or older. A designated representative also needs to be specifically provided for in the trust document, so availing oneself of this provision requires affirmative action before a trust becomes irrevocable. In spite of these limitations, the designated representative position offers clients considerable flexibility in designing trusts and should be considered when creating or updating an estate plan.

For help creating or changing your estate plan with the new ITC in place, contact us at Wilson and Wilson Estate Planning and Elder Law, LLC, 708-482-7090 or wwilson@wilsonwilsonllc.com