On July 15, 2014, Kentucky officially adopted the Uniform Trust Code (“UTC”), joining twenty-eight states that have officially adopted the UTC including Virginia, West Virginia, Tennessee and Ohio. Kentucky’s adaptation of the UTC will be codified under KRS Chapter 386B and as with any uniform law; the intent of the UTC is to provide clarity and stability to areas of the law typically governed by common law doctrine. The Kentucky UTC brings with it some substantive changes to the law of trusts and estates, most notably:
Changes to the Law on Revocable Trust: There are a lot of changes to revocable trusts under the Kentucky Uniform Trust Code, including new law that provides that upon the death of a settlor, any assets of a revocable trust can be subject to the claims of the settlor’s creditors. The UTC also clarifies that the ability to create or revoke a trust is the same as the requirements to make a will.
Clarification of Court Jurisdiction: Under the UTC, absent any specific language in another statute, the District and Circuit Courts will have concurrent jurisdiction over all trust actions in Kentucky. But if a party first files a trust action in District Court, the District Court will have sole jurisdiction over that matter unless the opposing party files the same action in Circuit Court within twenty days – which will automatically divest the District Court of jurisdiction. The UTC will not change the Circuit Court’s jurisdiction over any legal issue required by statute.
The Prudent Investor Rule Applies to Everyone: Prior to the enactment of the UTC, the “prudent investor” rule codified at KRS 286.3-277 applied only to corporate trustees. Under the new law, all trustees, no matter the type of trust, “…with respect to investments…” have a legal duty to act as a prudent investor.
The Doctrine of Worthier Title Goes the Way of the Dinosaur: Under Kentucky’s UTC, the doctrine of worthier title, a long out-dated and confusing theory of law, is officially abolished. The abolishment of this doctrine provides many benefit and rights under federal law, such as the right of a disabled person under the age of 65 to create a supplemental needs trust for his or her own benefit as long as at death, any remaining assets of the disabled person are used to reimburse the state for Medicaid benefits that were provided to the settlor during his or her lifetime. Further, under the UTC, the creator of a first party supplemental needs trust is not a settlor of the trust for the purposes of any UTC spendthrift statutes.
Pet Trusts for Fido: With the passage of Kentucky’s Uniform Trust Code, the Commonwealth becomes the forty-seventh state to enact animal companionship law that provide an avenue for pet owners to create a legally sanctioned trust for the care and protection of a beloved pet companion or service animal. Prior to the passage of this law, any trusts created for the care and protection of an animal were for legal purposes, considered simply honorary trusts. Under the UTC, a trust may be created to provide for the care of an animal alive during the settlor’s lifetime. The trust terminates on the death of the animal.