Estate Planning and Probate Law and Practice Section MCLE ... · 10/23/2019 · how service was executed by the Cook County Sheriff’s Office in Orland Park. Thereafter, ... his

Estate Planning and Probate Law and Practice Section MCLE Meeting

DuPage Judicial Center - ARC

October 23, 2019

11:45 AM – 12:00 PM Welcome/Introductions

Bill Hardesty – Estate Planning and Probate Law Chair

A few words from Sam Khalfan of Elite K Investments, LLC –

Today’s Lunch Sponsor

12:00 PM – 1:00 PM Program – Illinois Trust Code: What’s Changed, What’s the Same

and How Uniform is It?

Rebecca Wallenfelsz, Chapman and Cutler LLP

Speaker’s Bio - See attached

Presentation Summary

Rebecca will provide an overview of the new Illinois Trust Code

legislation which goes into effect January 1, 2020. She will discuss the

impact of the new law on trustees and beneficiaries and in the

preparation of trust agreements.

Next Meeting: November 13th – Judges’ Panel – Hon. Robert Gibson and Hon. Brian

Diamond – Overview of Decedent’s Estates, Guardianships and

Adoption

DCBA Events: October 24th – Pro Bono Week Ask a Lawyer Day – Courthouse

Annex - www.dcba.org/AAL

October 26th – Member Appreciation Family Day – Morton

Arboretum

November 15th & 16th – GAL Training – 421 Building – Auditorium

November 21st – DCBA Unwind – Lynfred Winery - Roselle

Earn CLE Online!

DCBA OnDemand CLE is Now Powered by IICLE The Illinois Institute for Continuing Legal

Education (IICLE®) and the DuPage County Bar Association (DCBA) are excited to offer a new

IICLE®Share collaboration to provide DCBA members a high quality and reliable online

learning experience. Members can find the link to The Illinois Institute for Continuing Legal

Education (IICLE) on the DCBA website under “Legal Community”→OnDemand CLE →Online

CLE Catalog. You must be logged into your DCBA Membership Profile in order to view courses

for free or at a reduced price.

View & Print All CLE Certificates through the DCBA Website:

Manage Profile -> Professional Development (under content & features) and choose the icon to

the left of each meeting to print your certificate directly or choose to have them emailed to you

to save to your computer (you MUST be logged in to view this feature)

http://www.dcba.org/AAL

$200 for DCBA Members $400 Non-MembersRegister online at: www.dcba.orgSend payments to: DuPage County Bar Association 126 S. County Farm Road, Wheaton, IL 60187

Session One: Friday November 15, 2019 from Noon - 5:30pm (Registration 11:30am) - GAL Appointment 101

- Substance Abuse/Mental Health Issues and Restrictions on Parenting Time

- Domestic Violence and Family Center Services

- DCFS/Children’s Advocacy Center/VSIs

- Special Needs Children

- 604 Evaluations

- Working with High Conflict Parents

Session Two: Saturday, November 16, 2019 from 8:00am-1:00pm (Registration 7:30am)- Children’s Panel

- Ethics-related Matters

- Gender Identity Issues

- Drafting Allocation Judgments/Facilitating Settlement

- Probate Matters

- Relocation

Program Location: DuPage County Administration Building Auditorium 421 N. County Farm Road in Wheaton, IL

By attending both sessions, you can earn up to 10 hours of CLE credit (PRMCLE awarded

based on final agenda). Attendance at both sessions is required to be placed or remain on

the approved GAL list used in 18th Circuit Domestic Relations Division.

The DuPage County Bar Association and the 18th Judicial Circuit Domestic Relations Division

Guardian Ad Litem Training Program

McArdle, as Successor Trustee of the Barbara M. McArdle Trust v. Christensen, as Trustee of

the Raymond H. Christensen Irrevocable Trust and as Trustee of the Beverly J. Christensen

Irrevocable Trust, 2019 IL App (3d) 170858 (op. filed Sep. 25, 2019) (NOTICE: THIS OPINION

HAS NOT BEEN RELEASED FOR PUBLICATION IN THE PERMANENT LAW REPORTS.

UNTIL RELEASED, IT IS SUBJECT TO REVISION OR WITHDRAWAL).

In this case, the Third District of the Appellate Court examined an apparent matter of first

impression: proper and effective service of process on an individual trustee. After a real estate

transaction between the McArdle Trust and the Christensen Trusts fell apart, plaintiff McArdle, as

trustee of the McArdle Trust, filed suit against defendant Christensen, as trustee of each of the

Christensen Trusts. Separate summonses, naming Christensen as trustee of each Christensen

Trust, were served via substitute service at the Orland Park address listed on the earnest money

checks tendered by each of the Christensen Trusts during the course of the real estate transaction

at issue. No other address for himself or the Christensen Trusts had been provided by Christensen

in relation to the real estate transaction.

Christensen failed to respond to McArdle’s complaint, and the trial court in Grundy County

entered a default judgment against the Christensen Trusts based on affidavits of service describing

how service was executed by the Cook County Sheriff’s Office in Orland Park. Thereafter,

Christensen moved to quash the service of process arguing that he had never resided at the Orland

Park address where service was allegedly executed; rather, he resided in Darien. According to

Christensen, McArdle was required to have served him at his residence in accordance with 735

ILCS 5/2-203 (i.e., the provision of the Code of Civil Procedure addressing service of process on

individuals), and, in failing to do so, the trial court never obtained personal jurisdiction over him.

McArdle countered by arguing that, because Christensen was not being sued personally, personal

service on Christensen was irrelevant and service had properly been made on the Christensen

Trusts at their address of record in Orland Park. Christensen appealed after the trial court denied

his motion to quash.

In its analysis, the Third District noted that a “written trust possesses a distinct legal

existence that is recognized by statute [citation] and can sue or be sued through its trustee in a

representative capacity on behalf of the trust” (emphasis added by the McArdle court quoting

Sullivan v. Kodsi, 359 Ill. App. 3d 1005, 1010 (1st Dist. 2005)), but no provision in the Code

specifically addresses service of process on a trust. Looking for guidance elsewhere after finding

no other cases discussing that issue, the Third District recognized that in Hanley v. Kusper, 61 Ill.

2d 452, 460 (1975), the supreme court (in the context of property taxes levied against individuals)

held that trustees “are not considered in law to be individuals.” Accordingly, the Third District

looked to sections of the Code addressing service on other legal entities that can sue and be sued,

but: “After a critical assessment of the nature of each of these entities, with particular attention to

voluntary unincorporated associations as defined in section 2-209.1 (735 ILCS 5/2-209.1 (West

2016)) and receivers, we conclude that written financial trusts and their trustees generally, and the

trusts in this case more specifically, do not fit comfortably into any of those organizational niches.”

Ultimately, the Third District affirmed the trial court: “Although the trust is a legal entity,

it is not an organization; it has no registered agent, no officers, and sometimes, as is apparently the

case here, no employees. Similarly, the trustee in this case is not a business organization or

institution, such as a bank, with employees and agents. There is only the single trustee who stands

as the representative of the legal entity that is the trust. In such a circumstance and, again, in the

absence of more definitive statutory direction, we believe that service of summons on the trustee

as an individual at the address of the entity being sued (the trust) is an appropriate method of giving

notice to the trust that it is being sued, especially where, as here, the address of the trust is the only

one that has been provided by the trustee.”

10/21/2019

1

DuPage County Bar Association • October 23, 2019

Rebecca Wallenfelsz, Chapman and Cutler LLP

Illinois Trust CodeWhat’s Changed, What’s the Same and How Uniform Is It?

Uniform Trust Code

Uniform Trust

Code (UTC)

– First published in 2000

– Adopted in 35 states and D.C.

– Adopted in Illinois 2019,

Effective 1/1/2020

– All default rules EXCEPT the

non-waivable provisions listed in Section 105

0

1

10/21/2019

2

Illinois Trust Code §§§§105(b) – Mandatory Rules

Specific terms of the trust prevail over any provision of this Code

except:

(1) the requirements for creating a trust;

(2) the duty of a trustee to act in good faith;

(3) the requirement that a trust have a purpose that is lawful and not contrary to public policy;

(4) the rules governing designated representatives as provided in Section 307;

(5) the 21-year limitation contained in subsection (a) of Section 409;

(6) the power of the court to modify or terminate a trust under Sections 411 through 417;

2

Illinois Trust Code §§§§105(b) – Mandatory Rules – cont.

(7) the effect of a spendthrift provision and the rights of certain creditors and assignees to reach a trust as provided in Article 5;

(8) the requirement under subsection (e) of Section 602 that an agent under a power of attorney must have express authorization in the agency to exercise a settlor's powers with respect to a revocable trust;

(9) the power of the court under subsection (b) of Section 708 to adjust a

trustee's compensation specified in the trust instrument that is unreasonably low or high;

(10) for trusts becoming irrevocable after the effective date of this Code, the trustee's duty under paragraph (b)(1) of Section 813.1 to provide information to the qualified beneficiaries;

(11) for trusts becoming irrevocable after the effective date of this

Code, the trustee's duty under paragraph (b)(2) of Section 813.1 to provide accountings to the current beneficiaries of the trust;

3

2

3

10/21/2019

3

Illinois Trust Code §§§§105(b) – Mandatory Rules – cont.

(12) for trusts becoming irrevocable after the effective date of this Code, the trustee's duty under paragraph (b)(4) of Section 813.1 to provide accountings to beneficiaries receiving a distribution of the residue of the trust upon a trust's termination;

(13) the effect of an exculpatory term under Section 1008;

(14) the rights under Sections 1010 through 1013 of a person other than a trustee or beneficiary; and

(15) the power of the court to take such action and exercise such jurisdiction as may be necessary in the interests of equity.

4

What’s Changed – An Overview

Replaces Illinois Trusts and Trustees Act, and others

– Does NOT change the Illinois Principal and Income Act

New Duties to Account/Inform

New/Expanded Trustee Powers

Expanded Categories for Virtual Representation

Standard for Modification/Termination of Trusts

Impact on Trustee contest issues

– Statute of limitations

– Trustee removal

5

4

5

10/21/2019

4

Duty to Inform to Qualified Beneficiaries (QBs)

– Existence of trust – Within 90 days of trust becoming irrevocable (or 90 days of appointment). CAN NOT BE MODIFIED.

– Copy of trust agreement. Can be modified.

– Changes with trustee (appointment/resignation/removal, contact information). Can be modified.

– Change in trustee compensation. Can be modified.

– Only applicable to “Effective Date Trusts”

– Directing Parties have same duty regarding changes in Directing Party and compensation

6

What’s Changed – Administration

Duty to Account to Qualified Beneficiaries (QBs)

– Provide accounting to all current beneficiaries. CAN NOT BE MODIFIED.

Can provide accounting to representative of current beneficiary

– Provide accounting to all presumptive remainder beneficiaries. Can be modified.

Can also provide accounting to representative of presumptive remainder beneficiary

– Only applicable only to “Effective Date Trusts”

7

What’s Changed – Administration (continued)

6

7

10/21/2019

5

Duty to Inform/Account to Qualified Beneficiaries (QBs)

– Effective Date Trusts:

All trusts that become irrevocable on/after 1/1/20 AND

Trustee accepts appointment after 1/1/20 (i.e., if trust becomes irrevocable after 1/1/20 but trustee accepted appointment before 1/1/20, new rules don’t apply)

– Prior Illinois statute (incorporated into ITC) on duty to account applies to:

All trusts that become irrevocable before 1/1/20 OR

Trustee accepts appointment before 1/1/20 (i.e., trustee accepts appointment of revocable trust before 1/1/20, new rules don’t apply to that TRUSTEE even if trust becomes irrevocable after 1/1/20)

8


Delegation

– Statutory authority to delegate any matter that a prudent person coulddelegate

– Same standard for delegation to investment advisor

Requirement for 60 days prior written notice has been eliminated

Need to inquire into qualifications of investment advisor

9


8

9

10/21/2019

6

Affiliated Investments

– Financial institution may purchase any affiliated investment if otherwise a prudent investment

– Total compensation (for institution as fiduciary and for affiliated investment) must be reasonable

– Must provide annual disclosure indicating affiliated nature and compensation (explanation of how computed)

10


Life Insurance

– Limited duties for trust-owned life insurance

Determination as to whether policy is proper investment

No diversification of policies or insurers

Inquiry into financial condition of insured

Preventing lapse if no readily marketable assets to pay premiums

Investigation of policy options

– Applicable to Effective Date Trusts and any other trusts where the trustee provides notice to settlor or QB of opt into statute (and no objection in 90 days)

11


10

11

10/21/2019

7

Virtual Representation

– Prior categories

Beneficiaries with substantially similar interest and no conflicts represent minors, unborns, incapacitated, or unlocated beneficiaries

Parent/Guardian represent minors if no conflict

Agent/Guardian can represent disabled person if given authority

Primary beneficiaries (really, QBs) represent any future, successor, contingent beneficiary

– No statement regarding conflict

– No requirement that those future, successor or contingent beneficiaries be minor, unborn, etc.

Court appointed GAL

12



– New category #1: Holders of Powers of Appointment

Holder of GPOA or very broad LPOA represents all persons who

interest may be eliminated by power (i.e., all appointees and takers in default)

– No statement regarding conflict

– No requirement that those persons represented be minor, unborn, etc.

Holder of LPOA represents all persons who interest may be eliminated by power (i.e., all appointees and takers in default) if no conflict

– No requirement that those persons represented be minor, unborn, etc.

13


12

13

10/21/2019

8


– New category #2: Designated representative (DR)

Any person with legal capacity designated in the trust instrument to represent a QB

– No statement as to conflict

– No requirement that QB be minor, unborn, etc. EXCEPT

Limitations:

– No DR for current beneficiary who is competent and age 30+

– DR cannot be trustee

– DR cannot be another QB unless named by settlor in instrument or family member of the QB

DR is fiduciary and must act in good faith/best interest of QB

14


What’s Changed –

Modification/Termination of Trust

By NJSA only

– Modify any administrative provision

– Add/eliminate trustee and add trustee powers

– Approve accounts/release/compensation of trustee

– Change situs

– Modification that is in connection with resolution of interpretation, construction, ambiguity or bone fide dispute

What’s not permitted by NJSA: modification of dispositive provision

(i.e., beneficial interest) that is not connected with resolving an

interpretation, construction, ambiguity or bone fide dispute

15

14

15

10/21/2019

9


Modification/Termination of Trust (continued)

By Court with Beneficiary Consent

– Requirements:

Only for non-charitable trusts

Consent of all beneficiaries (or representatives)

– Exception (to all beneficiaries) where court finds that non-consenting beneficiary is treated equitably and modification/termination is consistent with purposes of trust

Court determination per below

– Court Finding: modification or termination is not inconsistent with material purposes of trust

Spendthrift clause is a factor for court to consider

16

By Court

– Requirements:

Requested by any trustee, beneficiary, or AG or settlor with respect to charitable interest

Court determination per below

– Court Finding:

Change in circumstances not anticipated by settlor and modification/termination would further purposes

– Cannot diminish or alter charitable interest unless cy pres applies

Modify any administrative term if current terms are impracticable, cause waste or impair administration

Modify (including who is trustee) or terminate if costs of administration too high

17


Modification/Termination of Trust (continued)

16

17

10/21/2019

10

What’s Changed – Trustee Contest

Statute of Limitations

– New Rule (for Effective Date Trusts): 2 years for all actions by trustee adequately disclosed in an accounting or otherwise

Applicable to person who receives the information and each person represented by that recipient

Adequate disclosure: sufficient information so that person knows of potential claim or should have inquired into existence of claim

– Prior Rule (for pre-Effective Date Trusts: 3 years, with same standard as above

18

What’s Changed – Trustee Contest (continued)

Statute of Limitations

– 5 Years:

Any claim not otherwise barred by 2-3 year rule

5 years from first to occur of:

– Resignation/removal/death of trustee

– Termination of beneficiaries’ interest

– Termination of trust

– 5 years from the time of discovery of fraudulent concealment of cause of action

19

18

19

10/21/2019

11


Causes for trustee removal by court

– New basis:

Substantial change in circumstances OR

All QB request removal AND

Court finds removal best serves the interests of all beneficiaries, is not inconsistent with material purpose and there is suitable trustee

20


Attorney’s Fees

– Court may award costs and expense, including reasonable attorney’s fees to any party, to be paid by another party or from the trust that is subject of controversy, based on equities

– Not necessarily a change in Illinois law, but may give judges more

comfort in determination of fees now that there is a statute

21

20

21

10/21/2019

12

Drafting Considerations

Duty to account/inform

– Should the trust agreement opt out of trustee’s duty to account to/inform presumptive remainder beneficiary?

– For non-opt out or mandatory provisions (account to current beneficiary and inform all QBs of trust existence once irrevocable):

Can or should the trust appoint a Designated Representative?

Can or should the trust give a current beneficiary a GPOA or very broad LPOA, and direct that accounting/notices go only to the power holder?

– Should the trust agreement opt out (or limit) the duty to inform for changes in trustee, or changes in trustee compensation?

– For a ‘problem’ beneficiary, is it better to just make them a permissible appointee rather than a current or presumptive remainder beneficiary

22

Drafting Considerations (continued)

Standard for modification/termination of trust

– Should the trust agreement limit the ability of beneficiaries to change the trustee or modify beneficial interest of trust?

Should trust agreement specify that the spendthrift clause is a material purpose

Should trust agreement specify reasons/basis for trustee removal (i.e., bad faith, breach)

Should trust agreement preclude representation by GPOA/broad

LPOA holder?

Should Representation by limited to certain matters (e.g., name a

DR, but only for accounting, not for purposes of notice/participation

in court proceeding if beneficiary an adult)

23

22

23

10/21/2019

13

Rebecca Wallenfelsz

Rebecca is a partner in the firm’s Trusts and Estates Department, and has

been practicing law since 1997. Rebecca has extensive experience

representing individuals and institutions in trust and estate matters.

Rebecca represents a variety of fiduciaries and beneficiaries in the

administration of estates and trusts, including addressing fiduciary risk

issues, tax issues and litigation matters, such as will and trust construction,

breach of fiduciary duty and contested probate matters.

Rebecca’s extensive experience in estate planning matters includes drafting

a variety of wills, trusts and premarital agreements, and in planning for and

minimizing estate, gift and generation-skipping transfer taxes and related

income taxes, including taxes related to retirement plan assets.

In 2011, Rebecca was named to the Law Bulletin Publishing Company’s “40

Illinois Attorneys Under Forty to Watch” list of outstanding lawyers. In 2012,

she was elected to the American College of Trust and Estate Counsel, a

prestigious professional organization for skilled and experienced lawyers in

the trusts and estates practice. She co-Chairs the Probate and Fiduciary

Litigation Committee of ABA-RPTE Division.

24

Chapman and Cutler LLP111 West Monroe StreetChicago, IL 60603

T: 312.845.3442F: 312.516.1442 (fax)[email protected]

This document has been prepared by Chapman and Cutler LLP attorneys for informational purposes

only. It is general in nature and based on authorities that are subject to change. It is not intended as

legal advice. Accordingly, readers should consult with, and seek the advice of, their own counsel with

respect to any individual situation that involves the material contained in this document, the application

of such material to their specific circumstances, or any questions relating to their own affairs that may

be raised by such material.

© 2019 Chapman and Cutler LLP

25

24

25

Documents

Estate Planning and Probate Law and Practice Section MCLE ... · 10/23/2019 · how service was executed by the Cook County Sheriff’s Office in Orland Park. Thereafter, ... his