The New Jersey Uniform Trust Code – Part Eight: Revocable Trusts

Revocable Trusts

Article 5 of the NJ UTC contains miscellaneous provisions related to revocable trusts.  Certain of these concepts (e.g., modification, termination) are covered in more detail in other areas of this article.

As delineated above, for instance, this article describes the capacity of the settlor required with respect to revocable trusts and establishes that it is the same as the capacity of the testator to make a will.

Again, in a change from New Jersey common law, N.J.S.A. § 3B:31-43(a) presumes that a trust created after the effective date of the act is revocable.  That section provides that the settlor may revoke a revocable trust unless the terms thereof expressly provide that it is irrevocable or that it is proved by clear and convincing evidence that the settlor intended it to be irrevocable.

Under N.J.S.A. § 3B:31-43(b), if a revocable trust is created or funded by more than one settlor,  to the extent that the trust assets consist of community property, the trust may be revoked by either spouse or partner in a civil union, but may be amended only by joint action of both spouses or partners.  To the extent the trust is funded by other than community property, each settlor may revoke or amend the trust with regard to the portion of the trust attributable to that settlor’s contribution.

N.J.S.A. § 3B:31-43(c) provides that a settlor may revoke or amend a revocable trust:  (1) by substantial compliance with a method provided in the terms of the trust; or (2) if the terms of the trust do not provide a method or the method provided in the terms is not expressly made exclusive by:  (a) executing a later will or codicil that expressly refers to the trust or specifically devises property that would otherwise have passed according to the terms of the trust; or (b) any other writing manifesting clear and convincing evidence of the settlor’s intent.  Upon revocation of the trust, the trustee shall deliver the trust property to the settlor as the settlor directs.  N.J.S.A. § 3B:31-43(d).

The settlor’s powers with respect to its powers of revocability, amendment or destruction of property may be exercised:  (a) by an agent under a power of attorney only to the extent expressly authorized by the terms of the trust and the power, and (b) by a guardian of the property of the settlor only with the approval of the court assigning the guardianship.  N.J.S.A. § 3B-31-43(e)-(f).

A trustee who does not know that a trust has been revoked or amended is not liable to the settlor or settlor’s successors in interest for distributions made and other actions taken on the assumption that the trust had not been amended or revoked.  N.J.S.A. § 3B:31-43(g).

While a trust is revocable, rights of the beneficiaries are subject to the control of, and the duties of the trustee are owed exclusively to, the settlor.  N.J.S.A. § 3B:31-44.

A person may commence a judicial proceeding to contest the validity of a trust that was revocable at the settlor’s death within the earlier of:  (1) three years after the settlor’s death; or (2) four months, in the case of a resident, or six months, in the case of a nonresident, after the trustee sent the person a copy of the trust instrument and a notice informing the person of the trust’s existence, of the trustee’s name and address, and of the time allowed for commencing a proceeding.  N.J.S.A. § 3B:31-45(a).

Upon the death of the settlor of a trust that was revocable at the settlor’s death, the trustee may proceed to distribute the trust property in accordance with the terms of the trust.  The trustee is not subject to liability for doing so unless:  (1) the trustee knows of a pending judicial proceeding contesting the validity of the trust; or (2) a potential contestant has notified the trustee in writing of a possible judicial proceeding to contest the validity of the trust and the trustee has received written notice of a judicial proceeding commenced within 90 days after the contestant sent the notification.  N.J.S.A. § 3B:31-45(b).

Finally, a “beneficiary of a trust that is determined to have been invalid is liable to return any distribution received.”  N.J.S.A. § 3B:31-45(c).