Trust Migration and Change of Situs

Scope of the chapter. A trust created to last for generations will outlive the circumstances of its creation. The trustee named in the instrument may be acquired, may resign or may lose its appetite for the work. The beneficiaries may move across the country or abroad. The state whose law the settlor chose may change its tax regime or fall behind other states in the tools its trust code offers. Each of these events raises the same question: whether the trust can be moved, and what moves with it. This chapter examines the law of trust migration. It begins with the distinction between the matters that follow a change of place of administration and those that do not (see infra ¶ 2010). It then examines the default procedure of the Uniform Trust Code (see infra ¶ 2020), the powers an instrument may give a trustee, protector or adviser to move the trust (see infra ¶ 2030), and the three Delaware Supreme Court decisions of 2013 that remain the fullest judicial treatment of an attempted move (see infra ¶ 2040). The chapter then turns to the statutes of the receiving states (see infra ¶ 2050), to the nonjudicial, decanting and judicial routes (see infra ¶ 2060), to migration into and out of the international trust jurisdictions (see infra ¶ 2070), and to the tax consequences of a move (see infra ¶ 2080). It closes with the mechanics of a move and the drafting of migration provisions (see infra ¶ 2090).

Four things that may move. Lawyers speak of moving the "situs" of a trust as though situs were a single attribute. A trust has no single situs. A move may change any of four things. They do not always change together:

1. The trustee. A successor trustee in the new jurisdiction replaces the old trustee, or is added beside it.
2. The place of administration. The records, the decisions and the custody of the assets move to the new jurisdiction.
3. The law governing administration. The powers and duties of the trustee, the rights of the beneficiaries to information and accountings, and the remedies for breach come to be governed by the law of the new place.
4. The law governing validity and construction. The rules that determine whether the trust was validly created, how its dispositive terms are read and how long it may last change to the law of the new place.

A change of trustee will often change the place of administration, and a change of place of administration will often change the law of administration. Neither ordinarily changes the law governing validity and construction (see infra ¶ 2010). A planner who intends to change all four must take a separate step for each, and a planner who intends to change only some of them must make sure the others stay where they are.

Why trusts move. The reasons for moving a trust fall into four groups.

• Tax. A nongrantor trust that accumulates income may be taxed as a resident by the state where its trustee lives or where it is administered, and a move may end that residence (see supra ¶ 280; see infra ¶ 2080.02). The comment to section 108 of the Uniform Trust Code names this reason first: "A change may be desirable to secure a lower state income tax rate, or because of relocation of the trustee or beneficiaries, the appointment of a new trustee, or a change in the location of the trust investments." Unif. Trust Code § 108 cmt. (amended 2010).
• Administration. The family may want a trustee that answers its calls, a directed structure that the original state's law does not support, or a single trustee for trusts created by several generations (see supra chs. 6–8).
• Law. The original state may impose a rule against perpetuities, a mandatory duty to inform or limits on decanting and modification that the receiving state does not (see supra chs. 16–17; see infra chs. 22, 25).
• Protection. The family may want the spendthrift and creditor rules of a state or country with a stronger statute (see infra chs. 36–37). A move made for that reason before any claim arises is ordinary planning. A move made after a claim arises raises the separate questions of voidable transfer and contempt that the companion volume, Lighthouse on Asset Protection, examines in its chapter 29.

The routes. There are five routes by which a trust may be moved: the default procedure of the governing trust code, a power in the instrument, an agreement of the interested persons, a decanting into a new trust governed by the law of the new place, and an order of a court. Each route has its own requirements and its own limits, and the choice among them is often decided by what the instrument says and who is willing to consent. Table 20-1 compares the receiving statutes, and Table 20-2 collects the steps of a move in the order in which they are usually taken (see infra ¶¶ 2050.07, 2090.06).