When does a trust’s situs, also known as principal place of administration, move? What is enough to trigger a move? Should a trustee be concerned about their trust’s situs? These are all great questions that often get overlooked in the years and decades after a trust is created and well into its administration by a trustee.
Trust situs is an important issue for several reasons. Situs can dictate which state’s income tax applies, e.g., California vs. New York vs. Wyoming; situs is a factor in determining what law governs the administration of the trust; and situs often determines where a trustee or beneficiary might seek judicial relief. Accordingly, determining and possibly relocating trust situs is a significant decision for a trustee’s consideration.
The Uniform Trust Code and states that have adopted the Code use the term “principal place of administration,” rather than “situs.” Under the Code, the default rule is the trust’s principal place of administration is where the trustee is located. In the case of co-trustees, special rules may apply. For example, Colorado law states that in the case of co-trustees, the principal place of administration is the place of business of a corporate co-trustee or professional fiduciary. Otherwise, in the absence of a corporate or professional co-trustee, principal place of administration is the place of residence of any of the individual co-trustees, as agreed upon by them.
However, these default rules give way if the settlor has designated a principal place of administration in the trust instrument itself. The settlor’s designation of a particular place of administration will control if either (a) the trustee is located in the designated location or (b) all or a portion of the trust’s administration occurs in the location. This rule may differ in certain states. For instance, Wyoming adds to this list that the designated principal place of administration is also controlling if the settlor was a Wyoming resident at the time of creating the trust instrument.
With the general principles of where a trust’s principal place of administration is located, it can be seen that situs is a fluid concept depending upon the facts and circumstance existing at any given time. Trustees move or get replaced, often leading to unanticipated consequences for the unwary. As noted above, principal place of administration plays a role in several important issues, including state income tax and court jurisdiction. Accordingly, an individual trustee who moves from one state to another should exercise discretion and care as such a move might also result in the relocation of the trust’s principal place of administration. More importantly, a trustee should not forget that he or she is under a continuous duty to administer the trust in a place appropriate to its purpose, its administration, and the interests of the beneficiaries. Something as simple as a move from a low-income tax state to a high-income tax state could cause significant issues for a trustee.
In any case, a trustee does typically have the discretion (subject to the continue duty noted above) to relocate the principal place of administration. In such circumstance, the trustee typically should notify the qualified beneficiaries of the proposed transfer at least sixty days prior to transferring, giving the beneficiaries the opportunity to object to the transfer. If there are additional concerns around the proposed transfer or objection are raised, the trustee may need to seek judicial approval. However, assuming no objections are raised, the trustee may proceed without court approval and relocate the trust.