When people move out of state, they are always faced with the question of rather or not the trust they established should be revoked and a new trust established. This is especially true if you are moving into or out of the state of California. A recent article from LakeCountyNews.com discusses the issues involved with moving from state to state.
Trust are contracts and like all contracts they much declare which state’s laws govern the administration, interpretation and validity of the trust instrument. Typically, the laws of the state where the trust was established will be chosen. It’s difficult for a state to have to interpret a trust established out of state and apply a different states laws while relating to the interpretation and validity of the trust. In certain areas, however, California law requires that the trust follow the statutory rules without exception.
People who relocate into or out of California may confront the issue of whether the living trust that they established in the state of their former residence should be revoked and a new trust established under the laws of their new state of residence.
Let us discuss the issues.
Trusts are contracts. Like all contracts trusts must declare which state’s laws govern the administration, interpretation and validity of the trust instrument.
Typically, the laws of the state where the trust is established are initially chosen. Accordingly, when a California resident establishes a living trust for his California assets, California law governs. A California court is then much better able to understand how the terms of the trust and California law interplay.
It is more difficult when a court must interpret a trust established out of state and apply a different state’s law relating to the interpretation and validity of the trust.
California statutory trustee powers, trustee authorities and trust administration rules that apply to all California trusts, except insofar as the trust specifically provides otherwise, automatically apply.
In certain areas, however, California law requires that the trust follow the statutory rules without exception.
What if the California resident later leaves California? A trust is administered wherever the trustee resides. The laws of the second state where the trustee now resides would apply should the trustee ever use the state’s courts with respect to administration matters, such as the duties of the trustee to the beneficiaries and the rights of the beneficiaries under state law.
The laws of the first state would usually continue to apply to issues of interpretation and validity. That said, different states take different views on what issues are matters of administration, on the one hand, versus matters of interpretation or validity, on the other.
Does that mean that a new trust must always be established in the second state? It depends.
If the resident moves between community property states then perhaps a new trust is not necessarily needed. Some trusts provide that its governing law may be changed.
If so, is changing which state law governs sufficient? Not usually. Amending the state specific legal references concerning the trustee powers, trustee authority, and definition of legal terms will need to be amended.
Next, is it always desirable to change the jurisdiction of a trust when relocating? Not always. It might not be suitable if there were significant real property holdings or legal issues continuing in the first state.
For example, consider a settlor moves from California to Arizona, also a community property state, but who keeps a home in California and has death beneficiaries in California, he or she might decide to keep the California trust as such.
Also there may be asset protection and tax differences between the laws of the states that require consideration.
Depending on circumstance, the settlor might decide to add the new assets acquired in Arizona to the California trust or perhaps establish a separate trust under Arizona law.
What if the original trust is generally speaking out of date? Obviously, in that case it is much more likely that the old trust will be revoked (scrapped) and assets transferred to a new trust established under the laws of the second state.
Lastly, when people change residences they will want to create new powers of attorneys under the new state’s laws to designate agents to make decisions during periods of incapacity affecting their finances, property, legal affairs, and health care.
Moving from state to state does not always require a new trust. If you are moving out of a state and selling your assets in that state then you will probably want to set up a new trust. If you are moving to a new state but keeping assets in your old state then you may want to have two trusts. Keep the old one in place and set up a new one for the assets that will be acquired in your new state. Of course, if the trust is out of date then you will want to scrap that trust completely and do a new one. Lastly, when move to a new state remember to set up a new power of attorney under the new state’s laws.