TESTAMENTARY TRUSTS Trusts that are created pursuant to the terms of a probated Last Will and Testament are commonly referred to as testamentary trusts. 1. Applicable Law. The applicable law for these Trusts is the Kansas Probate Code (not the Kansas Trust Code). The authority of the probate court as to testamentary trusts is set forth at K.S.A. 59-103(7), as follows: to supervise the administration of trusts and powers created by wills admitted to probate, and trusts and powers created by written instruments other than by wills in favor of persons subject to conservatorship; to appoint and remove trustees for such trusts, to make all necessary orders relating to such trust estates, to direct and control the official acts of such trustees, and to settle their accounts. K.S.A. 59-103(a) Docket Fee for Trusteeship $69.50 [Rev. Ch. 80, Sec. 17, 2017 Sess. Laws] 2. Obtaining Appointment of Testamentary Trustee. Based upon the statutory grant of Court authority under K.S.A. 59-103(7), it appears necessary for a nominated testamentary trustee to be formally appointed by the Court. As a practical matter, the judicial grant of Letters of Trusteeship may be necessary to obtain delivery of the trust s share of probate assets, to deal with banks and financial institutions (such as to open accounts), or to later sell assets. It is also appropriate to establish the formal commencement of the new fiduciary relationship and the Trustee s formal acceptance of the obligation as fiduciary for the newly established testamentary trust. See Sample Petition, Order Appointing Trustee, and Letters of Trusteeship attached (Exhibits A, B and C). 3. Statutory Provisions Related to Testamentary Trusts. The Kansas Probate Code provisions related to Trusts established under law are found at K.S.A. 59-1601-1611. In effect, the statutory law provides the terms of the Will setting forth a Trustee s duties and authority trumps any Page -1-
provision of the article, including accounting requirements to the Court. K.S.A. 59-1607. Further, a beneficiary may waive duties imposed upon the Trustee by state law, subject however, to the approval of the Court. K.S.A. 59-1608. 4. Benefit of Detailed Trustee Powers Set Forth in Will Instrument. Absent a grant of authority set forth in the Will, a Testamentary Trustee will be compelled to obtain express Court authority to perform most any Trust investment activity or transaction involving Trust property. As a practical matter, the best-practice is to set forth the Trustee s powers and authority in detail in the Will, otherwise future Court will likely be necessary, thus incurring otherwise avoidable costs to the Trust. 5. Investment Decisions by Testamentary Trustees. A Trustee of a Testamentary Trust is expressly referred to as a fiduciary. K.S.A. 59-102. The Kansas Prudent Investor Act, K.S.A. 58-24a01-to-19, applies to all fiduciaries. The duties of a Trustee under the Prudent Investor Act are numerous, and include: A. Duty to Review of Portfolio & Make & Implement Changes. A testamentary trustee must take several affirmative steps soon after assuming the role of fiduciary (Note the term a fiduciary shall ). The multi-part affirmative steps required are as follows: Within a reasonable time after entering into a fiduciary relationship or receiving trust assets, a fiduciary shall review the trust assets and make and implement decisions concerning the retention and disposition of assets, in order to bring the trust portfolio into compliance with the purposes, terms distribution requirements and other circumstances of the trust, and with the requirements of this act. K.S.A. 58-24a04 B. Prudent Investor Standard. While the statute does not expressly refer to Modern Portfolio Theory the Prudent Investor Act essentially adopts the primary tenets of that body of academic research and literature that: (1) a fiduciary shall exercise reasonable care, skill, and caution to invest and manage trust assets as a prudent investor; and (2) the Page -2-
fiduciary s investment and management decisions respecting individual assets are evaluated not in isolation but in the context of the trust portfolio as a whole and as a part of an overall investment strategy having risk and return objectives reasonably suited to the trust. K.S.A. 58-2402(a) and (b) C. Duty to Diversify. A fiduciary shall diversify the investments of the trust unless the Trustee reasonably determines that, because of special circumstances, the purposes of the trust are better served without diversifying. K.S.A. 58-24a03 6. Tax Matters: A testamentary trust is a new and separate entity from a decedent s estate. A separate tax ID number is necessary, and a separate Form 1041 for the trust is necessary. 7. Beneficiary Authority to Invoke Court Supervision. Despite terms of a Will stating a Testamentary Trustee has no duty to account to a Court, a beneficiary may, at any time, invoke the oversight of the Court. K.S.A. 59-1607 and 59-1609. Page -3-
IN THE DISTRICT COURT OF HOPE COUNTY, KANSAS PROBATE DIVISION In re Daniel Q. Decedent Testamentary Grandchildren's Educational Trust. No: PETITION FOR LETTERS OF TRUSTEESHIP Comes now, Timothy Trustworthy, petitioner, and alleges: 1. Petitioner's address is: 2. The Last Will and Testament of Daniel Q. Decedent dated October 1, 2001, was admitted to probate by Order of the Probate Division of the District Court of Hope County, Kansas on February 2, 2017, as part of Estate Number 17-PR-0202. A copy of the Order Admitting Will is attached as Exhibit A. A copy of the Last Will and Testament of Daniel Q. Decedent is attached as Exhibit B. 3. Under the decedent s Will, Timothy Trustworthy, Petitioner, is appointed trustee of the Grandchildren's Educational Trust. The trustee is to serve without bond. 4. Timothy Trustworthy, Petitioner, is willing to act as appointed trustee of the Grandchildren's Educational Trust and is a suitable and qualified person to be so appointed. WHEREFORE, the petitioner requests that Timothy Trustworthy be approved and appointed as Trustee of the Grandchildren's Educational Trust established under the Last Will and Testament Daniel Q. Decedent, to serve without bond. Timothy Trustworthy, Petitioner Page -4- EXHIBIT A
IN THE DISTRICT COURT OF HOPE COUNTY, KANSAS PROBATE DIVISION In re Daniel Q. Decedent Testamentary Grandchildren's Educational Trust. No: ORDER GRANTING ISSUANCE OF LETTERS OF TRUSTEESHIP Now on this 13 th day of November, 2017, is heard the Petition for Issuance of Letters of Trusteeship filed by Timothy Trustworthy. Petitioner appears by and through his/her attorney,. There are no other appearances. After consideration of the following evidence produced, the Court finds as follows: 1. Notice of the time and place of hearing is not necessary. 2. Timothy Trustworthy is appointed Trustee of the Grandchildren's Educational Trust under the Last Will and Testament of Daniel Q. Decedent, deceased, dated October 1, 2001, which was admitted to probate by Order of the Probate Division of the District Court on February 2, 2017, as part of Estate Number 17-PR-0202. 3. Timothy Trustworthy is willing and qualified to serve as Trustee. The Last Will and Testament permits the Trustee to serve without bond. 4. Pursuant to Article X, Paragraph B of the decedent s Will, the Testamentary Trustee is relieved of the duty to file an inventory of assets and the duty to file accountings of Trust activity. The Trustee shall exercise all authority to manage Trust property as granted under Article XI of the Last Will and Testament of Daniel Q. Decedent without further Orders of this Court. IT IS, THEREFORE, ORDERED BY the Court that Timothy Trustworthy be appointed Trustee of the Grandchildren's Educational Trust established under the Last Will and Testament of Daniel Q. Decedent, deceased, to serve without bond, and Letters of Trusteeship shall be issued to Timothy Trustworthy. Judge Page -5-
IN THE DISTRICT COURT OF HOPE COUNTY, KANSAS PROBATE DIVISION In re Daniel Q. Decedent Testamentary Grandchildren's Educational Trust. No: Know All Persons By These Presents: LETTERS OF TRUSTEESHIP Timothy Trustworthy, having been appointed and duly qualified as Trustee of the Grandchildren's Educational Trust, established under the Last Will and Testament of Daniel Q. Decedent, deceased, is hereby granted Letters of Trusteeship of such trust with power and authority in the premises as provided by law and the Will of Daniel Q. Decedent. IN TESTIMONY WHEREOF, I, the undersigned, Judge of the above entitled Court, have subscribed my name and affixed the seal of this Court on November 13, 2017. Judge Page -6- EXHIBIT C