The New Jersey Uniform Trust Code – Part Three: General Provisions and Definitions of the NJ UTC (Article 1), Including Nonjudicial Agreements (Article 1), Representation (Article 2) and Miscellaneous Provisions (Article 9)
General Provisions and Definitions: Who is a Beneficiary
Article 1 of the NJ UTC includes general provisions and definitions. The definitions for the UTC are in N.J.S.A. § 3B:31-3. Of particular significance are the following definitions:
- Beneficiary vs. Qualified Beneficiary. A trust “beneficiary” includes a person: “(1) who has any present or future interest, vested or contingent; (2) who, in a capacity other than that of trustee, holds a power of appointment over trust property; (3) who is the owner of an interest by assignment or other transfer; and (4) as it relates to a charitable trust, any person who is entitled to enforce the trust.” A “Qualified Beneficiary” means a beneficiary who, on the date the beneficiary’s qualification is determined: “(1) is a distributee or permissible distributee of trust income or principal; (2) would be a distributee or permissible distributee of trust income or principal if the interests of the distributees described in paragraph (1) terminated on that date; or (3) would be a distributee or permissible distributee of trust income or principal if the trust terminated on that date.”
The difference between a “beneficiary” and a “qualified beneficiary” comes into play throughout the NJ UTC, as detailed below, including who receives notification of certain actions and who is considered a binding party to agreements.
Pursuant to N.J.S.A. § 3B: 31-10, the Attorney General of New Jersey has the same rights as a qualified beneficiary with respect to a charitable trust having its principal place of administration in New Jersey.
Trust Terms Prevail
In general, under Article 1 of the NJ UTC, the terms of a trust prevail over any provision of the statute, with certain exceptions. The statute thus consists of default rules that will apply only if the terms of the trust fail to address a particular issue. N.J.S.A. § 3B:31-5(a).
However, similar to the national version, the NJ UTC has several important exceptions listed in 3B:31-5(b), which prevail over the terms of the trust, including:
(1) the requirements for creating a trust; (2) the duty of a trustee to act in good faith and in accordance with the purposes of the trust; (3) the requirement that a trust and its terms be for the benefit of its beneficiaries, and that the trust have a purpose that is lawful, not contrary to public policy, and possible to achieve; (4) the power of the court to modify or terminate a trust under N.J.S.A. 3B:31-26 through N.J.S.A. 13B:31-33; (5) the effect of a spendthrift provision and the rights of certain creditors and assignees to reach a trust as provided in article 4 of this act; (6) the power of the court under N.J.S.A. 3B:31-47 to require, dispense with, or modify or terminate a bond; (7) the duty under subsections a. and b. of [N.J.S.A. 3B:31-66] N.J.S.A. 3B:31-672 to respond to the request of a qualified beneficiary of an irrevocable trust who has attained the age of 35 years for a copy of the trust instrument or for other information reasonably related to the administration of the trust; (8) the effect of an exculpatory term under [N.J.S.A. 3B:31-76] N.J.S.A. 3B:31-772; (9) the rights under [N.J.S.A. 3B:31-78] N.J.S.A. 3B:31-792 through [N.J.S.A. 3B:31-80] N.J.S.A. 3B:31-812 of a person other than a trustee or beneficiary; (10) periods of limitation for commencing a judicial proceeding; (11) the power of the court to take such action and exercise such jurisdiction as may be necessary in the interests of justice.
See N.J.S.A. § 3B:31-5.
Notice
Although notice of judicial proceedings remains the same, i.e., as provided for in the New Jersey Rules of Court, the NJ UTC offers various methods for notice of other proceedings. See N.J.S.A. § 3B:31-9. Permissible methods of notice or for sending a document include first-class mail, personal delivery, delivery to the person’s last known place of residence or place of business, or a properly directed textual electronic message.
Further, notice required under the NJ UTC or a document required to be sent under the NJ UTC, “need not be provided to a person whose identity or location is unknown to and not reasonably ascertainable by the trustee.”
Finally, a person can waive notice under the NJ UTC.
Nonjudicial Settlement Agreements
Article 1 also addresses nonjudicial settlement agreements. While prior to the NJ UTC, many matters related to trusts were settled informally through a nonjudicial settlement agreement, now parties are expressly authorized to use this method. See N.J.S.A. § 3B:31-11.
A nonjudicial settlement agreement is valid, so long as “it does not violate a material purpose of the trust” and includes terms and conditions that could be properly approved by the the court under the NJ UTC or other applicable law. Eliminating the cost and delay of court approval, the statute authorizes the use of nonjudicial settlement agreements in the following matters: (1) interpreting the terms of a trust; (2) approving a trustee’s account; (3) approving or restraining a trustee’s actions; (4) approving the resignation or appointment of a trustee; (5) transferring a trust’s principal place of administration; and (6) establishing a trustee’s liability for an action related to a trust.
Any interested party may request court approval of a nonjudicial settlement agreement either to determine whether the representation as provided in Article 2 was adequate or to determine whether the agreement contains terms and conditions the court could have properly approved. Under this section, an “interested person” means a person whose consent would be required in order to achieve a binding settlement were the settlement to be approved by court.
The only restriction is that a nonjudicial settlement agreement may not be used to produce a result that is contrary to other sections of Title 3B, including, but not limited to, terminating or modifying a trust in an impermissible manner.
Representation
Prior to the enactment of the NJ UTC, virtual representation of future interests in New Jersey was fixed by Court Rule. R. 4:26-3 provides that, absent a conflict of interest between the virtual representative and the persons being represented, certain individuals are authorized by the Rule to represent future takers. Specifically, R. 4:26-3(a) provides that, in an action involving property in which any person may have a future interest, it is necessary to join as parties only the persons who would be entitled to the property if the event or contingency terminating all present estates and all successive life or lesser estates therein had occurred on the date of the commencement of the action. Should such conflict exist, the court may, in its discretion, appoint one person from among the persons next entitled upon the occurrence of the event or contingency to represent all persons (whether in being or not) who may claim any future interest in the property. R. 4:26-3(b) states that where a party to such an action holds a power of appointment over part or all of the property, and in the absence of a conflict of interest, “… it shall not be necessary to join the potential or permissible appointees of the power…” or the “takers in default” if the power of appointment is not effectively exercised. Under R. 4:26-3(c), if there is no party authorized to act as representative of future or unknown takers by operation of the Rule, or if the application of the Rule to the parties is unclear, the court may appoint a virtual representative.
The NJ UTC provisions regarding representation are in N.J.S.A. § 3B:31-13 through N.J.S.A. § 3B:31-17.
N.J.S.A. § 3B:31-13(a) provides that notice to one who may represent and bind another person has the same effect as if notice were given directly to the other person. That is the core concept of virtual representation and essentially mirrors the basic concept underpinning R. 4:26-3. The NJ UTC provisions regarding virtual representation are more specific, and, to some extent, expansive. N.J.S.A. § 3B:31-13(c) provides that a person who represents a settlor who lacks capacity may receive notice and give binding consent on the settlor’s behalf.
N.J.S.A. § 3B:31-14 states that the holder of a general testamentary power of appointment may, to the extent there is no conflict of interest, represent and bind persons whose interests, as permissible appointees, takers in default, or otherwise, are subject to that power.
Under N.J.S.A. § 3B:31-15, fiduciaries and parents may represent wards and minors. This statute provides specific authorization that a parent may represent and bind the parent’s minor or unborn child if a guardian for the child has not been appointed. This streamlines the prior practice, which often required a parent to secure appointment as guardian ad litem prior to having the right to represent a minor child.
N.J.S.A. § 3B:31-16 provides that, “[u]nless otherwise represented, a minor, incapacitated, or unborn individual, or a person whose identify or location is unknown and not reasonably ascertainable, may be represented by and bound by another having a substantially identical interest with respect to the particular question or dispute, but only to the extent there is no conflict of interest between the representative and the person represented.” This seems to reflect the scope of virtual representation presented in R. 4:26-3(a).
Finally, N.J.S.A. § 3B:31-17 states that if there is no individual who can act pursuant to the provisions of the rule, or it is not clear whether a conflict exists, the parties can ask the court to appoint a representative. To this extent, the statute matches R. 4:26-3(c).
Article 9: Miscellaneous Provisions
Article 9, the last section of the NJ UTC, contains several miscellaneous provisions.
Of significance is N.J.S.A. § 3B:31-82, which states that all provisions of the NJ UTC that deal with the electronic records or signatures are governed by section 102 of the “Electronic Signatures in Global and National Commerce Act” (15 U.S.C. s.7002).