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
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.