A Heritage of Trust

Commonwealth Trust Company established.

Delaware enacted legislation providing that a new perpetuities period would begin on the exercise of a power of appointment, pre-cursor to the repeal of the Rule Against Perpetuities.

Commonwealth Trust Company and Hamilton Trust Company merged, with Commonwealth Trust Company as the surviving corporation.

Lewis v. Hanson, 128 A.2d. 819 (Del. 1957), aff’d sub nom. Hanson v. Denckla, 357 US 235, reh’g denied, 358 U.S. 858 (1958) – established that Delaware law would be applied to the administration of all matters involving a Delaware trust and trustee.

Tax Reform Act of 1986 passed by Congress establishing the generation-skipping transfer (GST) tax regime.

Peter and Jim Horty purchased a partial interest in Commonwealth from Benjamin (Bud) Vinton.

As textile producers left the northeastern United States for the southern states, Bancroft Mills closed in 1961. In 1991 Commonwealth Trust Company moved its offices to 29 Bancroft Mills, the former Bancroft Mills, and the site of our current office. Today the complex stands as a reminder of the significant milling history of the Brandywine Valley.

Peter and Jim Horty purchased the balance of shares of Commonwealth stock.

Directed Trust statute passed allowing bifurcation of trustee duties (12 Del. C. §3313).

Delaware abolished the Rule Against Perpetuities allowing the establishment of dynasty trusts (25 Del. C. §503).

Qualified Disposition in Trust Act established in Delaware making it one of the first two states to enact asset protection legislation in the United States (12 Del. C. §§3570-76).

Codification of the common law doctrine of virtual representation in Delaware for both judicial and non-judicial proceedings (12 Del. C. §3547).

Total Return Trust statute enacted as the first in the nation, allowing trustees to convert income trusts into total return unitrusts without court approval (73 Del. C. §48). First Private Letter Ruling issued recognizing the effectiveness of DING trusts [PLR 200148028 (Aug. 27, 2001). Others to follow include: PLR 200247013 (Aug. 14, 2002); PLR 20050214 (Sept. 17, 2004); PLR 200612002 (Nov. 23, 2005); and PLR 200637025 (June 5, 2006)].

McNeil v. McNeil, 798 A.2d 503 (Del. 2002) aff’d in part, rev’d in part sub nom. McNeil v. Bennett, 792 A. 2d 190 (Del. Ch. 2001). This case is the foundation for the duty under Delaware law to inform individuals of the existence of trusts under which they have a beneficial interest.

Provision added to the Delaware Statute to address beneficiary notification issues involved in the McNeil ruling of 2002 (12 Del. C. §3303(a)). Grantors may now restrict the interests of beneficiaries, including the right to be informed of their interest in a trust for a period of time by incorporating appropriate language in the trust document. Trustee’s authority to invade principal in trust (or decanting) statute enacted (12 Del. C. §3528).

Duemler v. Wilmington Trust Co., C.A. No. 20033 N.C. (Del. Ch. 2004) upheld the liability protection afforded a directed trustee when acting at the direction of a third party investment adviser.

Section 548(e) of the U.S. Bankruptcy Code amended to address asset protection trusts, expressly permits the use of domestic asset protection trusts in non-abusive circumstances (i.e. non-fraudulent transfers).

The creation of purpose trusts is authorized by the enactment of Section 3555 (12 Del. C. §3555).

Delaware’s Uniform Principal and Income Act codified (12 Del. C. §§61-301, et seq.)
Merrill Lynch Trust Company, FSB v. Campbell, et al., 1803-VCN, V.C. Noble (Del. Ch. Sept 2, 2009) (Mem. Op.) reaffirmed the Chancery Court’s dedication to holding trustees to the standards established in the trust instrument; it also served as a reminder to trustees of the importance of exercising and documenting their independent discretion; and finally, it highlighted the importance of express language in the governing instrument regarding fiduciary releases and accountings and the payment of related expenses.

Tenancy by the Entireties Property contributed to Delaware trusts retains its character as tenancy by the entireties property (12 Del. C. §§3334, 3574(f)). Duty to Co-fiduciaries statute passed to confirm that each fiduciary has a duty to keep the others reasonably informed regarding matters involving the trust administration (12 Del. C. §3317).

Investment decisions are now expanded to include the determination of value as to non-traditional assets (12 Del. C. §3313(d)).

Otto v. Gore, — A.3d —, 2012 WL 1852075, C.A. Nos. 559, 582, and 589, 2012 (consolidated appeal), Steele, C.J., (Del. May 22, 2012).
Supreme Court (the “Court”), has proven its consistent intention to “give maximum effect to the principle of freedom of disposition and the enforceability of governing instruments” as found in 12 Del. C. §3303(a). In reviewing two dueling trust instruments signed by the grantors, both purporting to have identical corpus, the Court reviewed extrinsic evidence of the grantors’ intent to create each trust. The Court held that while none of the facts were persuasive alone, taken as a whole, the cumulative effect of the extrinsic evidence was sufficient to establish the ineffectiveness of the first trust instrument and allow for the acceptance of the second trust as the official governing instrument and owner of the corpus.

Peierls cases
On October 2, 2013, the Delaware Supreme Court issued three landmark opinions referred to as the Peierls cases. IMO: Peierls Family Inter Vivos Trusts, No. 16812 (Del. Oct. 4, 2013); IMO: Ethel F. Peierls Charitable Lead Trust, No. 16811 (Del. Oct. 4, 2013); and IMO: Peierls Family Testamentary Trusts, No. 16810 (Del. Oct. 4, 2013). These cases clarify that Delaware law will be deemed to govern the administration of a trust which has migrated to Delaware so long as (1) the provision relating to the appointment of a successor trustee is without geographic limitation (2) a Delaware trustee is appointed and administering the trust and (2) the choice of law provision in the trust document does not expressly provide that another jurisdiction’s laws shall always govern regardless of the actual location of the trust’s administration.

Hardy v. Hardy, et. al., C.A. No. 7531-VCP, n. 119 (Del.Ch. July 29, 2014).
Non-Judicial Settlement Agreement Statute added to Title 12 of the Delaware Code as Section 3338. This provision allows interested persons to enter into a binding non-judicial settlement agreement with respect to any matter involving a trust, so long as it does not violate a material purpose of the trust. On July 22, 2014, an Act to Amend Titles 12 and 25 of The Delaware Code was signed into law (“Trust Act 2014”). The Trust Act 2014 legislation became effective on August 1, 2014. Of particular note were provisions affecting the springing of the Delaware tax trap which allow powerholders, having a nongeneral power of appointment over property of a trust exempt from GST tax, the option of exercising the power in a manner designed to trigger estate tax inclusion under Section 2041(a)(3) of the Internal Revenue Code.

One of the first of its kind in the country, Delaware passed the Fiduciary Access to Digital Assets statute as Section 5001 through 5007 of Title 12 of the Delaware Code. The statute allows individuals to obtain the same property rights in digital assets and accounts as are regularly applied to more traditional assets, thus affording them freedom of disposition.

Silent Trust Statute enhanced within Title 12 of the Delaware Code by expanding the language of Section 3303 and adding a new Section 3339. The legislation codified existing law regarding the permissibility of the terms of a governing instrument to vary the right of a beneficiary to be informed of his or her interest in a trust for a period of time. The new legislation provides a non-exclusive list of circumstances that would be deemed to constitute a “period of time” under Section 3303(c) of Title 12. In addition, a new Section 3303(d) provides that a “designated representative” (as subsequently defined in Section 3339) can bind a beneficiary during a period of confidentiality as to both judicial proceedings and nonjudicial matters.

The new statute also adds a new section to Title 12 of the Delaware Code, Section 3339, which (i) includes a definition of a “designated representative,” (ii) clarifies the fact that the terms of a trust instrument may authorize certain persons to designate or appoint one or more designated representatives, (iii) provides that a person who is appointed as a designated representative will serve only upon his or her acceptance of the position, and (iv) provides a presumption that a designated representative will act in a fiduciary capacity.

Trust Modification Statute added to Title 12 of the Delaware Code as Section 3342. This provision allows for the modification of an irrevocable trust during the lifetime of the trust settlor by written consent and without the involvement of the courts, even if the modification violates a material purpose of the trust. The statute requires the written consent of all then-serving fiduciaries and all trust beneficiaries as well as the consent or non-objection of the settlor. This statute is available only to trusts administered in Delaware.

Delaware’s Premium Tax for Trust-Owned Private Placement Life Insurance is Reduced.

12 Del. C. §3313A - Excluded Trustee
A new section was added to Title 12 of the Delaware Code, relating to the duties and liability of a trustee in cases where the trust instrument grants a different co-trustee the exclusive authority to take specified actions on behalf of the trust. This trustee is known as the “excluded trustee” because he is excluded from exercising discretion over the specified actions and therefore is excluded from liability for the same. This is very much the same as the directed trustee statute, wherein a trustee is directed with regard to specified actions; however, in this case, the direction adviser is also a co-trustee of the trust.

University of Delaware: Minor in Trust Administration
A first of its kind Minor in Trust Administration was established through a partnership between the University of Delaware and the Delaware Financial Education Alliance. The Minor enables students to understand the legal relationships between trustees and beneficiaries; manage the legal, tax, financial, and non-financial aspects of conservation and transfer of wealth; understand individual, corporate, estate and trust tax issues; and moderate the conflicting desires of current income beneficiaries and residual owners. Equally as important, the Minor is intended to develop a talent pipeline of trust professionals for the future growth of the industry.

12 Del. C. §3343 - Authority to Allocate Trustee Duties among Multiple Trustees
Section 3343 of Title 12 was added providing that, absent contrary language in the trust instrument, a holder of the power to appoint a successor trustee also has the power to appoint multiple successor trustees and allocate trustee powers amongst them. In allocating powers amongst multiple trustees, the power holder can exclude one or more beneficiaries from acting with regard to specific trustee powers, consistent with Section. In so doing, it is possible to bifurcate fiduciary duties amongst the trustees such that one could be responsible for distributions, one for investments, one for tax filings, and another serve as an administrative trustee. Consistent with the Section 3313A, a trustee to whom powers have been exclusively allocated will be deemed a fiduciary only with respect to those powers, and as to all other powers will be deemed an excluded trustee with no liability for or duty to monitor the acts of the co-fiduciary holding such exclusive powers.

12 Del. C. §3344: Income Tax Reimbursement or Payment
Section 3344 or Title 12 was added to address the reimbursement of income tax to the trustors of grantor trusts. Section 3344 provides that unless the governing instrument expressly provides otherwise, if a trust is treated as a grantor trust under the Internal Revenue Code, a trustee may, in its sole discretion or at the direction (or with the consent) of an advisor reimburse the trustor for any personal income tax liability paid due to the inclusion of the trust’s income and capital gains in the trustor’s personally reportable taxable income. Incorporated into this section, and consistent with the intent of IRC Section 672 (c), a trustee who is related or subordinate to the trustor will not be able to exercise this power. In addition, specific language was included in Section 3344 to clarify the fact that a trustor’s ability to receive discretionary reimbursements for income tax liability will not (1) cause the trustor to be treated as a beneficiary of the trust for creditor protection purposes or (2) reduce the charitable deduction amount available for federal or state income or transfer tax purposes.