At the beginning of this year, the California Uniform Directed Trust Act (CUDTA) went into effect, codified in Probate Code §§ 16600-16632.
It was a long time coming, having been first proposed back in 2010 by our state bar’s trust and estate section. When it went into effect this year, California was the forty-seventh (!) state to enact such legislation. Forty-six other states had beaten California, formerly known as a bellwether state and now known as the nation’s chief domestic exporter of refugees fleeing communism.
As a bastion of communism, the People’s Republic of California is no friend to creative trust planning, trusts being a cornerstone of freedom in free societies. Hence the delay in enacting CUDTA. Yet it had to happen eventually as California is not completely isolated from what is happening in Free America.
Not that the delay prevented creative planning. Many of us in California have for years been planning in various ways for directed trusts. For example, wealthy families may want to designate a particular wealth management firm to continue managing assets while a corporate trustee takes over other, more routine administrative duties. In my practice, I routinely include detailed and robust provisions for a “trust protector” to keep continuing trusts working over long periods of time. Where clients prefer using beneficiary-controlled trusts instead of requiring an independent trustee, I will include provisions for a “distribution trustee” and draft to allow some asset protection. These are all examples of what is called a “trust director” under CUDTA, which is some person (or group of persons) not a trustee, with power to direct trustee in regard to some aspect of trust administration, including distribution.
There are a million potential variants of directed trusts, this area is still developing, and this article not meant to discuss CUDTA thoroughly. Suffice it to say here that while CUDTA does not actually legalize any new form of planning (we were already doing this stuff), it does greatly promote directed trust planning by clarifying certain liability shields over these roles such that trust directors and directed trustees are liable for conduct within their own spheres, but do not have to worry so much about being liable for each other’s conduct. Duties to monitor are also reduced. Other arguments exist for these curtailments in liability, but CUDTA adds helpful clarity.
Another helpful aspect of CUDTA is that it allows similar partitioning of control, responsibility and liability between co-trustees, and apparently special trustees appointed for a particular purpose.
This is all very helpful with firearm planning, as it may be necessary to appoint a special trustee over certain firearms, or all of them. With firearms, it is very important to clearly specify who has authority over the firearm. The uncertainty over this aspect of control is one reason i seldom use NFA trusts in California, and CUDTA appears to help with this issue. However, there are many additional reasons, both legal and market, to steer clear of NFA trusts in California. Put simply, these over-regulated items are for the most part either illegal or not very popular, either because they are not great choices for self-defense, with better market alternatives, or simply not attractive enough to marry the federal government over.
CUDTA is directly relevant to an issue I posted about a year ago in a rebuttal to some disappointing (and offensive) misinformation (disinformation?) by CRPA regarding gun trusts, distribution trustees may be used in a beneficiary-controlled trust funded with firearms. As I wrote in that article, such a trust should clearly exclude firearms from the ambit of the distribution trustee’s control, leaving full control of the firearms with the beneficiary-trustee. If not, then the arrangment would appear to violate firearm transfer and registration laws as only one person, as reported to DOJ, may control that firearm. While federal laws are more focused on posession, California more stringently regulates ownership and control, in addition to possession.
The issue of power of appointment is a bit more grey. My conservative approach is to exclude from trust protector’s power of appointment any power over firearms, because of my concern for maintaining complete and total power of transfering firearms with the registered owner of those firearms. Yet Probate Code § 16606 excludes all powers of appointment from any application of CUDTA. Keep in mind that while CUDTA is helpful to make everyone involved more comfortable with furcated trust powers and duties, the primary focus in any gun planning must be to facilitate compliance with all applicable firearm laws.
