The Mandatory Disclosure Provisions of the Uniform Trust Code: Still Boldly Going Where No Jurisdiction Will Follow -- A Practical Tax-Based Solution

Abstract

Twelve years have passed since NCCUSL first proposed the Uniform Trust Code ("UTC") which has now been adopted in twenty-five jurisdictions. Notwithstanding the successful adoption of the majority of the provisions of the UTC in each of these jurisdictions, the mandatory disclosure provisions of the UTC have been universally rejected. These mandatory disclosure provisions are reform-based and beneficiary-friendly and have been widely criticized for contradicting the settlor's intent as stated in the plain language of the trust instrument. The majority of UTC adopting jurisdictions have simply deleted the mandatory disclosure provisions altogether and have adopted only the default disclosure provisions. A minority of jurisdictions have made exceptions or otherwise tempered the mandatory nature of the disclosure requirements in an effort to lighten the reporting requirements for trustees. Inasmuch as the primary purpose of any uniform law is to promote uniformity among the various jurisdictions and the mandatory disclosure provisions have failed to achieve adoption in even a single jurisdiction, NCCUSL should follow the majority of UTC adopting jurisdictions and delete the mandatory disclosure provisions of the UTC. The drafting committee should replace the current mandatory disclosure provisions with a mandatory provision that clarifies that the trustee must still make all disclosures to beneficiaries that are required for tax reporting purposes under the internal revenue code. Inasmuch as this is a mere clarification of the law that currently exists under the doctrine of preemption and is consistent with the law in the majority of UTC adopting jurisdictions, such a provision would likely gain widespread acceptance and would significantly remedy the lack of uniformity caused by the current version of the UTC mandatory disclosure provisions.

Keywords: Uniform Trust Act, disclosure provisions, NCCUSL, trustee, beneficiary

JEL Classification: K34