On July 12, 2019, Governor Pritzker signed HB 1471, creating the Illinois Trust Code (ITC). The ITC, essentially a new set of laws applicable to various trusts in Illinois, is effective January 1, 2020. Its precursor was the Illinois Trusts and Trustees Act. The ITC was developed primarily to reflect the Uniform Trust Code (UTC) in its terminology, structure and numbering system. As of 2019, 33 states along with the District of Columbia have adopted some version of the Uniform Trust Code. The ITC, however, has many Illinois unique legislative solutions for retaining provisions related to Illinois specific issues.
One of the most significant changes is regarding the duty to inform and account.
CHANGES TO LAW
The ITC introduced many new changes to the law from the old Illinois Trusts and Trustees Act. One of the most significant changes is evident in Sections 813.1 and 813.2 regarding the duty to inform and account. Other provisions of note include changes to exculpatory language, life insurance, default and mandatory rules, and the ability to delegate. These changes present drafting possibilities as well as new opportunities for advisors and various interested parties.
A major advantage of the ITC is that it has largely codified Illinois trust law. This is a significant shift from current law, where a fair amount of the law of trusts is only covered in case law authority. The ITC codifies trust matters that previously were only addressed in judicial opinions that could vary from district to district. Having these principles codified makes the interpretation and application of the law more consistent across the state.
DRAFTING OPPORTUNITIES
A majority of the ITC is elective, meaning the settlor can override provisions of the ITC in the trust instrument. However, certain provisions in the ITC may not be overridden regardless of how the trust instrument is drafted. Drafting attorneys will want to consider how the mandatory provisions will impact the trusts they are drafting, and consider whether to rely on the default provisions in the rest of the ITC or to draft their own provisions on those topics to best meet their clients’ needs. There are also new kinds of trusts permitted. Now, a grantor can create a trust without a beneficiary with a non-charitable purpose, as long as the statutory requirements are met.
Drafting attorneys will want to consider how the mandatory provisions will impact the trusts they are drafting.
NEW OPPORTUNITIES
A new opportunity arising under the ITC involves modifying or terminating a noncharitable irrevocable trust. The prior standard in Illinois, which relied on case law, generally required a showing of changed circumstances that could not have been anticipated at the time the trust was signed to enact a modification. Now, under Section 411 of the ITC, modification is permitted if all the beneficiaries consent and the modification is not inconsistent with any material purpose of the trust. In addition, a termination is permitted where all of the beneficiaries consent and a court determines that continuance of the trust is not necessary to achieve any material purpose of the trust.
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