Choice of Law in Trusts:
How Broad is the Possible Spectrum?

by Malcolm A. Moore

I. INTRODUCTION.

One of the primary purposes of this paper is to raise the consciousness of lawyers when drafting trusts with respect to choice of law provisions. Often a choice of law provision appears toward the back of the document. From its positioning, it cannot be concluded that the draftsman thought it was of little importance, but often that is indeed the case. I believe that draftsmen, by habit or because they view the matter as unimportant or both, limit the possible spectrum regarding choice of law provisions in the documents they draft. Draftsmen have typically not ventured far from "tried and true" choice of law provisions.

Some generalizations are in order at this point. First, traditionally land and movables have been viewed differently with respect to choice of law issues, with the law of the land's situs typically regarded as supreme. Second, testamentary trusts have been viewed differently than inter vivos trusts in terms of choice of law issues; in particular, the law applicable to testamentary trusts is frequently intertwined with the law and rules governing the validity of a will.

Choice of law issues almost by definition relate to the law of conflicts. Running throughout the case law and commentaries is the proposition that when the law of more than one jurisdiction can be applied to a trust, the one that upholds the trust's validity will be preferred. In addition, the choice of law that best carries out the settlor's intent will also be favored. Both of these notions, but in particular the latter, are subject to a finding that if there is a significant public policy of the jurisdiction with arguably the most contacts with the trust, that public policy will trump a settlor's or testator's intent that the law of a different jurisdiction be applied.

II. IN GENERAL.

Any exploration of the possible choices of law available to a testator or settlor with respect to a trust needs to start with what law governs with respect to (a) validity; (b) construction; (c) administration; and (d) meaning and effect of a trust, if the trust is silent on these matters. The two primary authorities on these matters are the Restatement Second of Conflict of Laws (1969) and Scott on Trusts (Fourth ed. 1989).

As noted above, historically, different rules have governed the applicability of law to interests in land as opposed to "movables." Scott, for example, in Section 643, states that "It is well settled that interests in land are determined by the law of the state of the situs of the land. The law of the situs will be applied not only by the courts of the situs, but also by other courts when the matter is presented to them in litigation." Section 643 at page 505. The Restatement, in Section 278 states "The validity of a trust of an interest in land is determined by the law that would be applied by the courts of the situs." It states that this is true whether the trust is inter vivos or testamentary. Inroads have been made on this proposition, however, both by commentators and by case law.¹ Saunders involved the issue of spousal rights in connection with Florida land arising out of a Colorado divorce. The Saunders court concluded that how the spouses divided their property relative to the Colorado divorce was an issue to be decided by Colorado law, not Florida law, even though the land was in Florida. The Texas court in McElreath concluded similarly that in the case of Oklahoma domiciliaries in the midst of a divorce who owned Texas property, no Texas public policy was at issue, nor should Texas have any interest in the matter, when dealing with spousal rights in the Texas property. These were not cases involving trusts, but are indicative of, if not a trend, at least inroads on a strict situs rule.

The Uniform Trust Code specifically makes no distinction between interests in land and interests in movables with respect to rules governing validity and meaning and effect. Section 403 states that a trust is validly created if its creation complies with the law of the jurisdiction in which the trust instrument was executed or the law of the jurisdiction in which, at the time of creation: (1) the settlor was domiciled, had a place of abode, or was a national; (2) the trustee was domiciled or had a place of business; or (3) any trust property was located. This provision is similar to Section 2-506 of the Uniform Probate Code.

A. Governing law absent any designation by the settlor or testator. Traditionally and historically, a distinction has been made between "substantive" or "dispositive matters" and matters involving trust administration and the meaning and effect (or interpretation) of a trust's terms. As a subset to that, questions of validity have typically fallen into the first category, and matters involving construction, administration, and meaning and effect, have fallen into the second category. Some matters can involve questions both of "disposition" and administration; the determination of what is principal and what is income is an example.

1. Validity. This is probably the least important consideration in terms of this paper's scope. Other than matters relating to whether notarization is required, etc., questions of validity would relate to matters such as the following:

a. Spousal rights, including government in the case of medical or other public benefits,
b. Avoidance of creditors,
c. Encouragement of divorce,
d. Rule against perpetuities,

With respect to questions of validity of trusts of land, Scott states that the validity of an inter vivos trust is determined by the law of the situs, regardless of the testator's or settlor's domicile. That conclusion could be eroded, however, where the land is to be sold and the proceeds transferred to another jurisdiction and the trust is to be administered in that other jurisdiction. Section 652. With respect to questions of validity of a testamentary trust, Scott states that where the land is to be retained in the trust, the validity of the trust is determined by the local law of the trust's situs. But, as discussed above in connection with inter vivos trusts, he states that if the land is to be sold and the proceeds invested elsewhere, then the state in which the trust is to be administered would govern the trust's validity. Scott, §651. The Restatement, at Section 278, discussing the validity of the trust of land, makes no distinction between a trust created by will or inter vivos. The section also, however, notes the possibility of the land being sold and the trust of the proceeds being administered in a different jurisdiction.

As to movables, both the Restatement and Scott state that in the absence of a choice of law provision, when dealing with a testamentary trust, either the law of the testator's domicile or the law of the jurisdiction in which the trust is administered would control, so long as it does not violate a public policy in the decedent's domiciliary state. Questions relating to the validity of the will itself, as opposed to the validity of the trusts created under it, would typically be decided under the law of the testator's domicile. As to the validity of an inter vivos trust, Section 270(b) of the Restatement states that the law of the state with which, as to the matter at issue, the trust has its most significant relationship would be applied to determine validity. Scott states that the validity of an inter vivos trust of movables is determined by the local law of the state with which the trust, with respect to the particular ground for invalidity, has its most significant relationship. Section 599. Examples include: settlor's domicile, location of trust assets at inception of trust, place where trust instrument was executed, and domicile of beneficiary or beneficiaries. Each of these statements is subject to the rule that there would be no violation of public policy of the state to which the trust has the most significant relationship if the law of a jurisdiction other than that of the Settlor's domicile was used. Courts generally strive to uphold the validity of a trust or its provisions if reasons can be found to do so. Scott §§593, 600.

2. Construction. With respect to the rules of construction applicable to trusts of land, Section 277(2) of the Restatement states that "In the absence of a contrary designation [by the testator or settlor], a trust is construed in accordance with the rules of construction that would be applied by the courts of the situs." However, in a comment to Section 277, at page 210, the Restatement notes that there is conflicting authority on the question of whether, in the case of testamentary trusts holding land, the situs rules of construction or the rules of the testator's domicile should govern. It argues, in the absence of any evidence to the contrary, that it should be the laws of the testator's domicile, rather than those of the situs of the land. That conclusion is contrasted with land in an inter vivos trust; in that case, the Restatement states at page 211: ". . . the settlor probably intended that the rules of construction prevailing at the situs of the land should be applicable, rather than the rules of his domicile."

As to movables, if no law is designated, the rules of construction of the state in which the trust is administered will be applicable. This would be true with respect to both inter vivos and testamentary trusts. However, rules of construction sometimes involve a matter not of administration, but rather of disposition, such as the application of the pretermitted heir statute, definition of issue (to include adopteds or not, for example), etc. With respect to these matters of "construction" involving testamentary trusts, the law of the state of the decedent's domicile would probably be used in connection with construction questions. Scott in §576(2) cites a number of cases to this effect. For inter vivos trusts, the rules of construction of the state which has the most significant relationship to the trust would apply. Scott §579. The Restatement, in Section 268(2)(b) states that the rules of construction of the state that the testator or settlor would probably have desired to be applicable should be applied. The Restatement goes on to state in comment f. to Section 268 that in the case of testamentary trusts, the law of the testator's domicile would be applied. As to "disposition" or "substantive" matters needing to be construed in the case of inter vivos trusts, the Restatement simply says: "All that can be said with assurance is that the courts attempt to apply the rules which the settlor would probably have desired to be applicable." Restatement §268, comment g.

3. Administration. With respect to the application of the law relating to the administration of a trust having an interest in land, the Restatement at Section 279 generally states that the law of the situs would apply. As to movables, if there is no designation in the document of the law governing administration, then the law of the jurisdiction in which the trust is being administered would apply as to (a) a jurisdiction's power to impose and collect income taxes and to which court's jurisdiction the trust will be subject and (b) matters involving questions of administration such as investment powers, fiduciary compensation, ability to terminate trusts, duties owed to beneficiaries and trustee liability for the breach thereof, removal and succession of trustees, etc. Scott §604.

Scott states that in the case of testamentary trusts questions of administration, like validity, are determined by the law of the state of the testator's domicile at death. §605. However, if the trust is actually going to be administered in a place other than the jurisdiction of the testator's domicile, then the laws of administration of that state should apply. With respect to inter vivos trusts, Scott states that the law governing administration is that of the jurisdiction with which the trust has its most significant relationship. §612.

4. Law Governing Meaning and Effect. These terms are not used in common law nor mentioned in Scott or the Restatement. Section 107 of the Uniform Trust Code does use these terms. As used therein, the terms are distinguished from the law governing validity of the trust. The words "meaning and effect" include matters of administration and also matters involving construction. "Administrative" as opposed to the "dispositive" questions of law would presumably be equivalent to questions involving the "meaning and effect" of the terms of the trust. Matters of construction should be viewed a bit differently: when the testator's intent as to a particular matter is not clear from the terms of the trust, then rules of construction would be used to determine that intent. This is in contrast to the laws defining the fiduciary's compensation, investment powers, etc., which are generally regarded as "administrative." All that Section 107 states is that "The meaning and effect of the terms of a trust are determined by . . . (2) in the absence of a controlling designation in the terms of the trust, the law of the jurisdiction having the most significant relationship to the matter at issue."

III. SITUS.

The word "situs" is often used in connection with the discussion of what laws apply to a trust. Perhaps its primary use is in connection with trusts of land. The "situs" of a trust can also mean the place of the trust's administration. Therefore, in many cases when reference is made to the applicability of the laws of the place of a trust's administration, what is really being stated is that the laws of the "situs" would apply. For the purpose of this paper, the word "situs" will be deemed equivalent with the words "place of administration." Thus, when a settlor/testator designates a trust's "situs" or states in a choice of law provision that questions relating to matters of trust administration will be governed by the laws of the jurisdiction in which the trust is located, he is really saying that questions of trust administration will be decided by the law of the trust's situs.

Situs and place of administration become important when a testator, settlor, or trustee is trying to avail himself of a beneficial law of a particular jurisdiction which sometimes can only be utilized if the trust is actually administered in that particular jurisdiction or the trust has its "situs" there. Examples include taking advantage of the jurisdiction's unlimited rule against perpetuities, the rights of creditors against settlors of self-settled trusts, applicability of state income taxes, and the like.

Neither Scott, nor the Restatement, nor the Uniform Trust Code use the term situs extensively. The Uniform Trust Code uses the words "principal place of administration" and discusses rules relating to locating or changing a trust's principal place of business. The comments to Section 108 of the Uniform Trust Code state: "A trust's principal place of administration ordinarily will be the place where the trustee is located." Scott uses the word "situs" in dealing with trusts of land. The Restatement also uses the word "situs" in discussing the rules relating to the applicability of laws to interests in land. See, e.g., Section 223, et seq.

IV. UNDER WHAT CIRCUMSTANCES CAN A SETTLOR/TESTATOR EFFECTIVELY CHOOSE THE APPLICABLE LAW?

Typically a trust document does contain a choice of law provision. Such a provision typically will address issues involving validity and construction, most often stating that such issues will be decided by the law of the settlor's or testator's domicile. There is then typically a provision that states that matters of administration, meaning and effect, or like words, will be governed by the laws of the trust's principal place of administration or the jurisdiction with which the trust has its most significant contacts. Hence some attempt is typically made to separate out choice of law issues regarding validity and construction on the one hand, and administration and meaning and effect on the other. As noted above, the words "meaning and effect" has been used by the Uniform Trust Code to include matters of construction.

A. Validity. As to trusts of land, neither Scott nor the Restatement have any discussion of what law would govern validity if the settlor or testator tries to designate the applicable law as that of a jurisdiction other than the trust's situs. However, as previously noted, the Uniform Trust Code does not distinguish between land and movables and would, in effect, allow a settlor or testator to designate which jurisdiction's law would govern questions of validity, provided there is some nexus between the trust and the chosen law. UTC Section 403 provides as follows:

A trust not created by will is validly created if its creation complies with the law of the jurisdiction in which the trust instrument was executed, or the law of the jurisdiction in which, at the time of creation:

(1) the settlor was domiciled, had a place of abode, or was a national;
(2) a trustee was domiciled or had a place of business; or
(3) any trust property was located.

As to movables, the general rule is that a settlor/testator can select the law of the jurisdiction to govern the validity of the trust if the chosen jurisdiction has a sufficient relationship to the trust. Section 270(a) of the Restatement so provides. It states that if the local law of the state designated has a "substantial relation" to the trust, and the application of its law does not violate a strong public policy of the state with which the trust has its most significant relationship, such designated law shall apply. Such a "substantial" relationship would exist when the law as to validity is that of the jurisdiction in which the trust is to be administered or that of the place of business or domicile of the trustee at the time of the creation of the trust, the location of the trust assets, the domicile of the settlor, or the domicile of the beneficiaries. Scott, at Section 591, states that a testator can choose the law of a state other than the testator's domicile to determine questions of validity if the state designated has a "substantial connection" with the trust. He goes on to give as examples the testator's domicile, the place of administration of the trust, the domicile or place of business of the trustee, the location of the property. For a case involving an attempted choice of law to govern validity which was ineffective, see City Bank Farmers Trust Co. v. Cheek.² The trust in City Bank Farmers Trust was created in New York by a settlor domiciled in New York, named a New York bank as trustee, but provided that the laws of Tennessee (which had no connection with the trust) should govern the trust's validity.

As to inter vivos trusts, Scott does not seem to go as far as the Restatement in terms of the designated law governing validity having to be of a jurisdiction that has a substantial relationship to the trust. Scott does, however, state that if the attempt of a settlor or testator to select the law of the state to govern the validity of the trust when one or more provisions of the trust would violate a strong public policy of the testator's domicile in the case of a testamentary trust, or of the jurisdiction having a significant relationship to the trust in the case of an inter vivos disposition, the selection should not succeed. Such public policies could relate to:

1. Provisions encouraging divorce,
2. Attempts to defeat spousal rights,
3. Attempts to avoid creditors,
4. Attempts to avoid Medicaid rules, and
5. Perhaps, but not necessarily, perpetuities issues.

Section 403 of the Uniform Trust Code is consistent with the Restatement and Scott, stating that the choice of laws governing validity must have a connection with the settlor's domicile, the trustee's domicile or place of business, or where the trust property is located.

It was surprising to the author that only in the case of issues of validity does there have to be some kind of a nexus with the domicile of the testator or settlor, or the jurisdiction whose laws are being sought to be applied. In matters involving construction, administration, and/or meaning and effect, the jurisdiction whose laws the settlor wishes to have applied need have no relationship to the situs or place of administration of the trust, or the domicile of the testator or settlor.

B. Construction. With respect to trusts of land, the Restatement in Section 277(1) states that whether or not a testamentary or inter vivos trust is concerned, a settlor or testator can designate which jurisdiction's laws will be used in questions involving construction. With respect to rules of construction, Scott states at page 531 in Section 648(1) that if the testator or settlor directs that the trust be construed in accordance with the laws of a particular state, that direction will be respected. He cites Matter of Quinn.³

As to movables, under both the Restatement and Scott it is well established that a settlor or testator can select the laws to govern questions of construction if the jurisdiction whose law is chosen has no connection to the trust. Restatement Section 268(1) comment b. states that the reason given for this position that there need not be a connection with the trust is . . . "because construction is a process for giving meaning to an instrument in areas where the intentions of the party, or parties, would have been followed if they had been made clear." No distinctions are made in the Restatement between testamentary and inter vivos trusts. Scott reaches the same conclusion in Section 575 for the same reasons given by the Restatement, citing a number of federal and state cases for this proposition.

C. Laws Governing Administration. As to trusts of land, if the testator or settlor provides that the local law of some state other than the law of the land's situs should be applied to govern the administration of the trust, or to certain issues of administration, the courts at the situs would apply the designated law as to issues which can be controlled by the terms of the trust. Scott states at Section 659 that although the general rule is that matters of administration would be decided by the law of the state of the land's situs, if the testator or settlor has designated the law of another state to govern the administration of the trust, that designation would be respected, citing Section 279 of the Restatement.

As to movables, both the Restatement and Scott seem to equate the laws governing administration and the place of administration, although the distinction between the two is noted in Scott's discussion at Section 605 dealing with administration of inter vivos trusts and those created by a will. Both Scott and the Restatement state that a settlor or testator is free to choose the law governing administration of the trust even though that law has no connection with the trust's actual place of administration, the testator's domicile, etc. The following are noted by both the Restatement and Scott as matters of administration:

1. Trustee powers,
2. Trust investments,
3. Compensation,
4. Indemnification,
5. Removal and appointment of successor trustees,
6. Termination of the trust, and
7. Determination of principal and income.

It should also be noted that both the Restatement and Scott suggest that the settlor may choose the laws of different jurisdictions to apply to different questions involving matters of administration. For example, the settlor could state that the law of one jurisdiction would govern the trustee's compensation, the law of another jurisdiction would cover allowable investments, and yet another jurisdiction's law could govern the right to terminate the trust.

D. Incorporation by Reference of Uniform Sites or Codes. Could the testator/settlor, utilizing the doctrine of incorporation by reference, direct that the laws governing meaning and effect would be those as set forth in a uniform act such as the Uniform Principal and Income Act or the Uniform Trust Code, even if no reference is made to a particular jurisdiction which has enacted the specified uniform act? There should be no impediment to this since whenever another specific jurisdiction's laws are selected to apply to matters of administration, the settlor or testator is using the concept of incorporation by reference since the particular state law provisions being made applicable are typically not set forth in the instrument, but rather just by reference to the jurisdiction or a particular statute of that jurisdiction. Of course it could be specified that one or more parts of the laws of a jurisdiction that had enacted the Uniform Trust Code would apply to questions of administration of the trust. If that was the case, then any changes that that jurisdiction had made in the Uniform Trust Code or indeed any gloss that had been placed on the Uniform Trust Code's provisions by case law in that jurisdiction presumably would also be applicable to the trust.

From a practical point of view, if the draftsman is going to attempt to evaluate the laws governing trusts in jurisdictions other than his or her own jurisdiction, a pretty inefficient process would be involved because of the need to survey the laws of all other jurisdictions with respect to the question involved. Of course if the draftsman knew specifically of an attractive rule in another jurisdiction that he or she would want to apply, then it would be easier. In that case the draftsman could simply write into the trust the terms of the provision that he wanted to apply. For example, if the draftsman desired to give the ability to a trustee to make distributions to beneficiaries in further trust, but there was no specific law in the otherwise governing jurisdiction allowing that, the draftsman could simply provide for it. On the other hand, he could adopt the laws of a jurisdiction such as New York which, as part of its trust administrative law, has empowered a trustee to make distributions in further trust. ⁴

A far more efficient way to "surf" the breadth of the law governing trusts and jurisdictions other than one's own is to review the terms of a piece of uniform legislation, such as the Uniform Trust Code, or the Uniform Principal and Income Act. Then the draftsman could actually write into his or her document those provisions of such uniform legislation that were desired to be applied to the trusts in the document; alternatively, the desired terms of one or more uniform acts could be incorporated by reference.

As noted earlier, Section 107 of the Uniform Trust Code speaks in terms of "governing law" which it then describes as the "meaning and effect of the terms of the trust." Here, as with Scott and the Restatement, a testator/settlor is free to choose the law governing the meaning and effect of the terms of the trust. However, the Uniform Trust Code conditions this on the designation of the jurisdiction's law that is chosen not being contrary to a strong public policy of the jurisdiction having the most significant relationship to the matter at issue. With respect to place of administration, Section 108 of the Uniform Trust Code states that the terms of a trust designating the principal place of administration are valid if the principal place of business is located in, or a trustee is a resident of, the designated jurisdiction or all or a part of the administration occurs in the designated jurisdiction.

V. MOVING A TRUST.

If it is desired to make applicable to the trust "substantive" or "dispositive" matters such as the law governing rule against perpetuities, the law governing the rights of creditors against the settlor of a self-settled trust, or the avoidance of state income tax, a trust would in all probability have to be moved to the jurisdiction whose laws were attempted to be applied. For example, if the desire was to take advantage of Alaska's creditor protection laws for self-settled trusts, the trust would actually have to be moved there rather than simply stating that Alaska laws would govern creditors' rights in connection with a self-settled trust administered elsewhere. Of course in the case self-settled trusts, typically one would be talking about a new trust, not an existing trust to which the laws of a different jurisdiction might be applied. This need to move the trust would also be true with respect to the avoidance of state income tax.

If a settlor or testator wishes to invoke the laws of another jurisdiction, it needs to be determined whether or not the jurisdiction whose laws are sought to be applied has any requirement that to take advantage of such laws the trust actually has to be administered in that jurisdiction. For example, Delaware law requires that in order for a trust to avail itself of Delaware's total return of the unitrust provisions, the trust has to be administered in Delaware. ⁵

On the other hand, there is no specific requirement that in order for a trust to avail itself of the Delaware unlimited rule against perpetuities the trust has to be moved to Delaware. In the majority of cases, however, such an attempt would not be successful whether or not the trust was moved because most trusts trying to achieve "dynasty" or long term status will actually define the trust term by reference to the local rule against perpetuities, e.g., lives in being plus 21 years. Even if such a trust is moved to Delaware, while theoretically the advantages of the unlimited rule against perpetuities would be available, it simply would not be applicable or useful because of the trust's scheduled termination before that. If a trust was drafted to last for perpetuity, however, then presumably Delaware law could be directed to apply to the trust, whether or not the trust was being administered in Delaware. This assumes that drafting "forever" trusts governed by the laws of the jurisdiction that in fact did not have unlimited perpetuity legislation would not be against the public policy of that state. If that was the case, then an argument could be made that a settlor or testator was not free to choose an unlimited trust term, even if it was governed by the perpetuities laws of Delaware or Alaska, for example.

At the workshop conducted by the author on this subject at the Heckerling Institute, a participant stated that he would create trusts without a designated termination, but provide that the trust would be administered in a jurisdiction not having an unlimited rule against perpetuities until sometime during the 21 year period after the expiration of the designated lives in being, during which time he would have the trustees move the trust to a jurisdiction such as Delaware. Assuming that the public policy of the trust in which the state was first administered was not offended by a "forever" trust, the technique should be successful. Of course, when consideration is given to moving a trust to an unlimited perpetuity jurisdiction, even if that was consistent with the terms of the trust, if the trust was a grandfathered generation skipping trust, it would have to be definitively determined whether or not such a move would ungrandfather the trust by virtue of extending the trust's term. ⁶

It may be necessary to move a trust to make available to the trust and its beneficiary the kind of nonjudicial dispute resolution agreement procedure provided by the laws of a jurisdiction, e.g., Washington. Washington provides a procedure whereby all interested parties can join together in modifying the provisions of a trust without the necessity for court involvement, but which agreement would have the effect of constituting an amendment to the trust.

In the author's experience, the Washington procedure has been used in many situations involving removal and replacement of trustees, and trustee succession in general. It is often the case that insufficient provisions are included in a trust with respect to trustee succession, particularly if individual trustees are involved. The procedure can be used for providing for successor trustees, filling a vacancy, or indeed specifying a future procedure to be used with respect to how to choose successor trustees. If minors or unascertained beneficiaries are involved, a "special representative" would have to be appointed by the court to represent those interests, unless the principal's virtual representation could be used to effectively represent those interests. For example, an older sibling of a minor beneficiary could in many instances effectively, without conflict, represent the interests of his or her sibling, without the need for the appointment of a special representative.

Section 111 of the Uniform Trust Code validates such a procedure. However, it will only be a truly "non-court" procedure if the settlor is alive and is joining in the transaction. If the settlor is not living, then Section 111 states that the court needs to be involved to determine whether or not a material purpose of the trust would be compromised by whatever modification was sought. Further, Section 411 of the Uniform Trust Code also contains a provision dealing with modification or termination of a trust, again requiring the involvement of a court of the settlor is not alive.

Could the Washington procedure, or the Uniform Trust Code Section 411 procedure, be "written in" to the document by a settlor to be made applicable to his or her trust even if neither the settlor nor the trust had any connection with a jurisdiction providing for such a procedure? It seems to the author that if such a settlor/testator could provide for his or her own procedure for making such changes, then except to the extent that a court needs to be involved, the law of that other jurisdiction should be available to be utilized by the non-resident trust. Is the adoption of such a procedure not similar to provisions which can be directly written into a trust giving the trustee, or a trust protector, for example, the power to amend the trust? It is hard to see how a settlor/testator's adoption of a procedure to make changes to a trust could be found to be in violation of the laws of the trust's place of administration. However, to the extent that the involvement of a court is necessary, the move to the state whose laws it is desired to be applied in this connection might be necessary. If court involvement is necessary, wouldn't it be the court of the trust's principal place of administration, having jurisdiction over the trust? If so, and the laws of the trust's principal place of administration had no procedure for effecting such agreements, would they really be "valid" short of moving the trust?

A. Direct Change. If it is determined that a trust needs to move to another jurisdiction to avail itself of that jurisdiction's laws, or if for other reasons a trust move is beneficial (such as getting out from under a state's income tax) how and under what circumstances can such a move be effected?

In the absence of authority in the governing instrument, in order to have a trust's situs, or its principal place of administration moved, presumably whatever rules and procedures are specified under local governing law (both in the old and the new jurisdiction) must be observed in moving the trust.

Scott discusses the issue at Section 613. There he states that if an inter vivos trust and its trustee have not become subject to the jurisdiction of any particular court, the trustee could move the place of administration of the trust. However, to the extent that the trust has already become subject to the jurisdiction of the local court, and/or there are accounting, etc. rules to observe, such a move would not be so easy to accomplish.

Scott states in Section 614 (page 359) that a court may authorize a change in the place of administration if it is determined that it would be in the best interests of the beneficiaries, such as where the beneficiaries become domiciled in another state or where the trustee has moved to another state. A number of citations follow that statement.

Scott also cites a number of state statutes authorizing the transfer of trust assets to a trustee in another state. At least fourteen states have statutes providing for how to move a trust from that jurisdiction to another jurisdiction.

It has been suggested that before attempting to move a trust, an order accepting the trust in the new jurisdiction should be obtained. That may be a good idea if courts of the new jurisdiction will play a major role in trust administration. Otherwise, that extra step should not be necessary. In the author's experience, the new jurisdiction will typically accept the jurisdiction of the new trust absent statutory provisions which need to be satisfied.

Of course, there may be rules in the new jurisdiction precluding a nonresident from acting as trustee.

B. Indirect Change.

Often there is an implied authorization by the settlor/testator to have the trust moved. For example, if the instrument provides for the removal and replacement of trustees, or for the succession of trustees, and the newly appointed trustee or the succeeding trustee resides, or has its principal place of business in another jurisdiction, a court should have no problem (if such action is necessary) granting the trustee authority to change its place of administration.

A beneficiary having a limited or general power of appointment can, in effect, achieve the same result by exercising the power to create a new trust in a different jurisdiction.

The consolidation and mergers of trusts companies should make it easier to effect a move in a trust's situs, or place of administration. If a trust company has offices in, for example, California and Washington, and it is desired to move the trust to Washington, at least one of the impediments to changing situs would not be present: having to convince a trustee in one state to resign, to be succeeded by a trustee in another state.

C. Applicable Law.

In Section 615, Scott raises the issue of whether the applicable law governing a trust is also changed when its principal place of administration is changed. He concludes that it depends on the trust's terms. There will be cases where the document is silent on applicable law. There will also be situations where the statement has been made that the law governing a trust's validity and construction will be the law of the testator's or the settlor's domicile, but it is silent on whether a change in the place of administration would change applicable law with respect to administrative matters. Alternatively, the document could actually state that the law of administration will be that of the new, rather than the old, jurisdiction, if the trust is moved, or even vise versa.

In the case of a change in trustee who resides in a different jurisdiction, Scott in Section 615 (page 368) cites cases reaching contrary conclusions as to whether the change in successor trustee (corporate in the cases) resulted in a change of the applicable law governing administration of the trust. Scott in Section 615 (page 367) also states that ". . . there will be no change in the applicable law if this would be contrary to the intention of the testator, as when he has expressly or by implication provided in the will that the administration of the trust should be governed by the law of the state of his domicile at death, even though the place of administration should subsequently be changed." Scott (page 367) cites several cases concluding that simply because a trustee moves from one state to another the move will not necessarily result in the change of law applicable to the administration of the trust.

The Restatement, in §§271 and 272, comment c., recognizes that the law governing administration of the trusts is not always the law of jurisdiction to which the trust has moved.

If, as is recommended, the instrument provides for the move of a trust to another jurisdiction, the draftsman should make it clear whether by moving to the new jurisdiction the law of that new jurisdiction should apply to all matters involving the trust, or whether the "old" jurisdiction's laws will continue to apply in one or more instances. For example, if a move is made to a state simply to avoid state income tax, it would not necessarily follow that all the laws of the new jurisdiction without an income tax should be applied to the trust. As will be pointed out later, there are also certain federal tax issues that need to be considered in connection with the move of a trust.

For a complete discussion of the mechanics and issues raised in a move of situs from one jurisdiction to another, see VI and VII of Robert J. Rosepink's paper entitled "Changing State Borders: Moving Trusts From One State To Another," presented at the Fall 2000 meeting of the American College of Trust and Estate Counsel.

VI. WHEN MIGHT A CHANGE IN SITUS BE DESIRABLE?

Probably the most common reason for wanting a change in trust situs would be to avoid state income taxes applicable to the trust. See also the paper presented by Max Gutierrez, Jr. at the 36th Heckerling Institute entitled "The State Income Taxation of Multi-Jurisdictional Trusts - The New Playing Field" dealing in large part with the question of how much nexus a trust must have with a state for that state to constitutionally impose a tax.

Of course, many documents specifically deal with, and give authority to the trustee, to move a trust to a different jurisdiction from its original jurisdiction. The settlor/testator may specify any procedure for accomplishing this, in terms of whether the trustee makes the decision, the trustee makes the decision with the consent of some or all of the beneficiaries, or whether not all of the beneficiaries can join in to effect a move. Section 108(c) of the Uniform Trust Code gives the power to a trustee to move a trust, but notice must be given to the trust beneficiaries.

A situs change might be useful to limit creditor's rights, although typically if one is trying to take advantage of the new laws regarding asset protection, these would involve new trusts, rather than existing trusts. The Restatement at Section 273 states that for testamentary trusts, creditors' rights would be determined by the law of the testator's domicile or the place of administration chosen by the testator, if different. With respect to inter vivos trusts, creditors' rights would be governed by the law of the state of administration or by the local law to which the administration of the trust is most substantially related.

Another reason to move a trust would be to utilize procedures for termination and/or revision of the trust (i.e., nonjudicial dispute resolution agreements). Reference should be made to the discussion above regarding whether or not an actual trust move would be necessary to utilize such nonjudicial settlement procedures or, for example, could Sections 111 or 411 of the Uniform Trust Code be made applicable to the trust?

If it was desired to take advantage of the laws of the jurisdiction with an unlimited rule against perpetuities, in most cases it will be necessary to move the trust to the jurisdiction having such beneficial laws. It was pointed out above that in most cases it would not be productive to move a trust to an unlimited perpetuities jurisdiction because the term of the trust would in all probability have been defined by reference to the rule against perpetuities in the old state. However, an exception could be the case where a beneficiary held a general power of appointment and, in effect, moved the trust by exercising his general power to move the trust. See, e.g., Wilmington Trust Co. v. Wilmington Trust Co. ⁷

As previously noted, several states have provided statutory requirements which must be met before that state will accept jurisdiction of a trust. Both Alaska and South Dakota have enacted such laws.

VII. WHEN MIGHT A LAW DIFFERENT FROM THAT OF THE TRUST'S PRINCIPAL PLACE OF ADMINISTRATION BE DESIRABLE?

State laws relating to validity, construction, administration, meaning and effect, etc. can be found both in statutes applicable in those states and also by common law. When a settlor chooses to adopt the law of a different jurisdiction with respect to any aspect of trust operation, the settlor is not adopting just the codified law in any state with respect to the trust matter in question, but also all of the underlying common law decisions.

The state whose law the settlor wants to utilize may address the question of whether a trust actually has to be moved there in order to avail itself of its administrative laws. For example, Delaware states that its laws relating to total return and benefits are available to trusts "administered" in Delaware under Delaware law.⁸ Reference has been made elsewhere to statutory requirements which must be satisfied before utilizing Alaska's community property and creditor jurisdiction laws. South Dakota has similar statutes.

What follows is a list of areas that a settlor or testator may find inadequately or inappropriately covered by his or her own state law and where the laws of another state could be made applicable, or to incorporate by reference the provisions of the Uniform Trust Code or Uniform Principal and Income Act, for example, could be utilized.

A. Trustee Powers. Powers granted to trustees may be inadequate or not extensive enough to suit a trust draftsperson. Section 816 of the Uniform Trust Act contains comprehensive and varied powers which all or some of which could be incorporated by reference by the draftsman. For example, Section 816(6) grants power to deal with operating a business. Section 816(13) grants numerous powers related to dealing with environmental law issues. Washington law, for example, gives extensive powers for trustees to operate a business.

B. Investment Powers, Including Prudent Investor Provisions. If the laws of the place of administration of a trust did not provide for a "total return" or a "prudent investor" approach, the provisions of the Uniform Prudent Investor Act could be incorporated by reference. The laws of a particular jurisdiction providing "good" law in this regard could also be utilized. However, as noted earlier, one must check to be sure that a trust does not have to be administered in a jurisdiction to take advantage of its laws. However, a law authorizing a trustee to adopt a unitrust approach to effect a total return rather than being constrained only to distribute income, would not involve the necessity of actually moving the trust's administration. Adoption of such another jurisdiction's laws regarding unitrust payments could also help, as noted below, in connection with achieving certain tax goals.

C. Principal and Income. The definition of income and principal unless the effect of applying an income and principal provision different than that of the trust's administration would be deemed "dispositive" or "substantive," as opposed to "administrative". The charging of a fiduciary fee is against income or principal should be characterized as administrative and should not require a trust to move to utilize the laws of that jurisdiction. Likewise, adoption of Section 104(c) of the Uniform Principal and Income Act giving the trustee power to make adjustments between income and principal to enable the trustee better to emulate a total return concept could be made applicable to a trust again, without having to move the trust.

D. Other Jurisdictions' Disclaimer Laws. The ability to effect a Section 2518 qualified disclaimer can only be made if the disclaimer in question is sanctioned by state law. However, there would seem to be no reason why the laws of disclaimer relating to the trust's place of administration would have to be utilized.

E. Facility of Payment Provisions. Provisions of the trust's place of administration might be inadequate with respect to the breadth of choices in making distributions to beneficiaries. Most jurisdictions provide that a trustee can make distributions to a minor or incompetent beneficiary by making distributions to a custodianship for the beneficiary, to a parent, etc. Most do not give the trustee the ability to make distributions in further trusts. However, for example, New York⁹ grants trustees the power to do just that. Of course, the question whether to grant a trustee the power to make distributions for the trust involves a myriad of issues, both tax and non-tax. See, in this connection, the author's article entitled "New Horizons in the Grant and Exercise of Discretionary Powers." For example, a beneficiary for whom a special needs trust would have been established in the first place had it been known of that beneficiary's special needs, the ability to distribute to such a trust would be very helpful. The "third party" special needs trust discussed by Sterling Ross at the 36th Heckerling Institute in his paper entitled "Special Needs Trusts: A New Wrinkle No More" could be utilized if the trustee had such a power to make distributions in trust. To the extent a trustee does not have that power, then presumably, the only alternative would be to have a special needs beneficiary establish a first party trust, the benefits of which are much more limited than those of a third party trust.

F. Non-prorata Distributions. While a number of state statutes do give a trustee the power to make non-prorata distributions, some do not. Of course, again the alternative could be to put one's own provisions in a trust granting the trustee such powers, rather than having to adopt the laws of another jurisdiction.

G. The Ability to Delegate. See, for example, Section 807 of the Uniform Trust Code.

H. The Division or Merger of Trusts. The power to divide trusts is essential if one is to take advantage of new regulations issued in connection with the severance of generation skipping trusts to produce a one or zero inclusion ratio, rather than something in between, for affected trusts. The Uniform Trust Code at Section 417 contains provisions to that effect, but only after giving notice to "qualified" beneficiaries. This is an area where the draftsman might well want to custom draft provisions relating to trust divisions or mergers. The ability to merge may well be useful when a number of trusts would otherwise result for a single beneficiary due to the termination of several trusts containing identical provisions for that same beneficiary.

I. Mechanisms for Choosing and Selecting Trustees, Filling Vacancies and Providing for Succession. Again, the Uniform Trust Code has extensive provisions with regard to these issues set forth in Section 704. For example, if there is a vacancy, the vacancy can be filled by the unanimous agreement of "qualified beneficiaries." To effectively provide for sensible selection procedure for successor trustees, of course, specific provisions should be included in the instrument or perhaps the same result could be achieved by entering into a nonjudicial dispute resolution agreement or utilizing Section 411 of the Uniform Trust Act.

J. Provisions Relating to Virtual Representation. Typically a draftsman would not include such provisions unless there were specific provisions with respect to the possibility of nonjudicial agreements between beneficiaries, etc. However, if it is desired at some point to make possible such procedures, virtual representation needs to be considered. There would seem to be no reason why the laws of another jurisdiction with respect to virtual representation in connection with a non-court involved matter could not be utilized.

VIII. FEDERAL, STATE, GENERATION SKIPPING GIFT TAX ISSUES.

Often federal transfer tax law makes reference to state law provisions. For example, as noted above, qualified disclaimers under Section 2518 can only be made if the underlying disclaimer is validated by state law. The definition of income for federal tax purposes is also dependent on state law. In this connection, the proposed Section 643(b) regulations relating to the definition of income provide that if state law (a) authorizes a unitrust approach to distributions or (b) gives the trustee a power to make adjustments between principal and income (as in Section 104 of the Uniform Principal and Income Act), the utilization of that law will not cause any marital deduction disqualification in terms of the "all income requirement."¹⁰ Adoption of a unitrust approach for payments to current income beneficiaries pursuant to state law will also not ungrandfather an exempt generation skipping trust.¹¹ Absent such provision as is contained in Delaware law that the utilization of a unitrust approach is not possible without administering the trust in Delaware, a settlor/testator (or as will be developed in the following portions of this paper, the trustee) could make the law of the state having "good" unitrust laws applicable to the trust in question. Alternatively, and perhaps more simply, if a power of adjustment was made applicable to the trust, the same result could be achieved.

The Section 643(b) proposed regulations also clarify situations where capital gains will be included in distributable net income, and hence taxed to the beneficiary. Here the permitted allocations will be respected for tax purposes if directed by the terms of the governing instrument and/or applicable local law. Regulation Section 1.643(A)-3(a) will be amended to reach the following results:

A. Any capital gain that is included in the Section 643(b) definition of income will be included in distributable net income.

B. Any capital gain that is used to determine the amount or the timing of a distribution to a beneficiary will be included in distributable net income.

C. Capital gain will also be included in distributable net income if the fiduciary, pursuant to a discretionary power granted by local law or by the governing instrument treats the capital gains as distributed to a beneficiary provided the power is exercised in a reasonable and consistent manner.

D. Presumably resort would not have to be made to local law if there was sufficient breadth of powers to deal with capital gains granted the trustee in the instrument. If the trustee is granted discretion to determine principal and income questions, but there is no enabling language in the document with respect to utilizing the new alternatives for including capital gains in distributable net income, presumably the trustee could effect the inclusion of income in capital gains under one of the three scenarios. The proposed regulations speak in terms of being able to utilize these new procedures either in accordance with the power granted to the fiduciary by local law or by the governing instrument. If there is no power in the governing instrument to determine principal and income questions, then presumably resort would have to be made to local law. Here it should be possible for a settlor or testator to make the laws of another jurisdiction whose laws would enable the inclusion of capital gains in distributable net income applicable to the trust.

State law can and has been used to prevent gift and estate taxation in several instances. For example, a number of states have enacted legislation which will pare down what would otherwise be a general power of appointment to a limited power of appointment. The situation most commonly arises when a beneficiary is serving as trustee of the trust with powers to invade not limited by an ascertainable standard. The laws of a number of states have either pared the power down to a special power in those circumstances or have stated that a trustee other than the beneficiary would exercise the powers of invasion, or if there is no such other trustee, then a special trustee would be appointed. Of course these kinds of provisions could be inserted in a trust at its inception, although presumably care has been taken not to create the kinds of situations that would otherwise need the "fix it" help. Similar "savings" state law provision include the interpretation of a power modified by the words "absolute" or "uncontrolled" to not be so broadly read in the case of a beneficiary-trustee. Another example would be state law which would automatically prevent distributions being made from a trust to discharge a grantor's or a trustee's support or a legal obligation. Section 814 of the Uniform Trust Code contains all these provisions. An incorporation by reference of Section 814 of the Uniform Trust Code should have the same beneficial results as utilizing the law of a jurisdiction providing that same kind of relief.

A number of revenue rulings have been issued concluding that such state statutes are effective to preclude adverse estate or gift taxation.¹² While these rulings involve the application of the law of the state in which the trust is actually being administered, there would seem to be no reason why the same result should not occur if, instead of utilizing the law of the trust's place of administration, incorporation by reference of a provision such as Section 814 of the Uniform Trust code is utilized.

While the above commentary relates to instances in which state law can be helpful to transfer tax consequences, there can also be some risks in connection with federal tax law when a trust is either moved from one jurisdiction to another or the law of another jurisdiction (different from the law of the trust place of administration) is utilized. For example, if a grandfathered generation skipping trust is involved, to what extent do the laws of the "old" jurisdiction have to be retained in terms of, for example, principal and income determinations, as opposed to utilizing the current (and future) principal and income laws of the new jurisdiction because of the fear that the applicability of those different rules could result in possibly passing greater amounts of property to lower generation beneficiaries? With respect to the possible ungrandfathering of a grandfathered generation skipping trust by a move from one jurisdiction to another, first, if the change of situs does not change the governing law (presumably of the state of prior administration) there would be no problem with respect to a grandfathered trust.¹³ Regulation Section 26.2601-1(b)(4)(i)(D)(2) makes it clear that if the movement from one jurisdiction to another results in the elimination of income taxes payable by the trust, the absence of such taxes will not be considered to shift the beneficial enjoyment of the trust. To be sure grandfathered status is preserved, a decision could be made to change the situs of the trust to the new jurisdiction but retain the old jurisdiction's laws with regard to questions of a determination, including the determination of principal and income questions.

However, if under some scenario the application of a different jurisdiction's law to the trust could result in granting a power to a beneficiary-trustee that could amount to a general power of appointment, conceivably bad transfer tax consequences might result. Reference has already been made to ungrandfathering a generation skipping trust if for some reason a new applicable rule of perpetuities extended the term of the trust beyond which the grandfathered regulations provide.

Reference was made earlier to the ability to treat a unitrust payment as income for federal tax purposes in a number of circumstances. If the trust was moved to a jurisdiction whose laws did not give the ability to a trustee to adopt the unitrust approach or to make adjustments between income and principal, and such an approach was utilized by the trustee, a marital deduction might be endangered by violating the "all income" requirement.

IX. GIVING TRUSTEES THE RIGHT TO MAKE CHOICES OF LAW WHICH A SETTLOR OR TESTATOR COULD MAKE.

If a settlor or testator can effectively choose to have the law of the trust's place of administration applied, or incorporate by reference provisions such as those contained in the Uniform Trust Code, there should be no prohibition against the settlor/testator granting the trustee the power to make the same choices. Neither the Uniform Trust Code, nor the Restatement or Scott discusses this. However, there should be no policy reason why a settlor/testator cannot, in effect, delegate to the trustee the power to effect such changes of law. A settlor or testator can, and often they do, also grant the trustee broad powers in administering the trust, including broad decision making powers over substantive issues. If that is possible, there should be no issue with a settlor or testator giving that power to the trustee, or to a third party, such as a trust protector.

It could be pointed out, of course, that if the settlor/testator wants to have the law of a different state apply to his or her trust, he or she can do it when the trust is drafted or can actually include provisions in the trust to effect such wishes. However, practitioners, settlors and testators are not all knowing. Assume, for example, that a beneficiary becomes a trustee holding powers that turn out to be "bad" from a transfer tax point of view. If the trustee were given the power to make the law of another jurisdiction, or the law contained in the Uniform Act, applicable to that trust, adopting, for example, Section 814 of the Uniform Trust Code paring a general power down to a limited power, an otherwise disastrous tax consequence could be averted. It is simply impossible to predict what will happen in the future. In the interest of providing maximum flexibility, why not grant the trustee the power to make other jurisdiction's or uniform act's laws applicable to the trust, as needed, rather that limiting the trustee to moving the trust. In many instances, as has been demonstrated, a trust would not have to move in order to avail itself of official laws of another jurisdiction. Why should not the trustee be able to make such a choice?

The enumeration of situations where a settlor might well want to deviate from otherwise applicable state law set forth in Section VI above would also be the kinds of choice of law decisions that could be given to a trustee. The settlor would not need to enumerate or even give examples of the instances when a trustee could appropriately decide to change applicable law; a generic power granted to the trustee to make such choice of law decisions should be adequate. The instances listed in Section VI when a settlor or testator might want to be specific in adopting other state law or Uniform Act provisions are also those in which the law of a jurisdiction different than the principal place of the trust administration could be made applicable without having to move the trust. Those same matters could just as well have been enumerated in this Section as in Section VI; they are fairly interchangeable in terms of whether a settlor makes choices, or whether a trustee who is given the power to do so makes choices.

For example, in an existing trust that wished to substitute a unitrust approach for an income approach, if the trust instrument (as no doubt would in almost all cases) did not provide for such payments, nor did the laws of the state of administration authorize such a substitute, then the trustee could move the trust to a jurisdiction that had such authorizing laws, or, alternatively, if the trustee had power to make different choices of law applicable to the trust, the laws of another jurisdiction that did permit such an approach (but without requiring a move to that jurisdiction) could be chosen by the trustee to apply to the trust in question. Query: would a power given the trustee to determine principal and income questions in and of itself be read to allow the trustee to choose the law of another jurisdiction that authorized the unitrust concept?

Obviously it would not be wise to grant trustees unlimited power to make such choices of law. If, for example, a trustee/beneficiary was granted the power to make, in effect, unlimited changes to the trust by adopting the law of another state one or more instances with respect to trust administration, the trustee having such a power could be deemed to possess a general power of appointment. Further, the grant of such a power to make choice of law decisions should not result in a change in the disposition of the trust property or impair the interests of any beneficiary of the trust unless the settlor or testator had, through some other mechanism (e.g., power by an interested trustee to amend the trust, both as to administrative and dispositive matters) chosen to do so. Also, such a power granted to a trustee should not be exercisable if its exercise would reduce or eliminate any transfer or income tax benefits otherwise available to the trust.

X. WHAT ARE THE RESTRICTIONS, IF ANY, ON A SETTLOR/TESTATOR GRANTING TO THE TRUSTEE OR TRUST PROTECTOR THE POWER TO MOVE THE TRUST, OR TO SELECT WHATEVER LAWS AS TO MEANING AND EFFECT (OR "ADMINISTRATION") THE TRUSTEE DEEMS APPROPRIATE AND BENEFICIAL TO THE TRUST AND ITS BENEFICIARIES?

A. Potential estate/gift tax issues (including power of appointment concerns under IRC §2041) depending upon how broad the power and whether the trustee was also a beneficiary (e.g., determination of principal and income questions).

B. Presumably such a power would be ineffective to allow the trustee to adopt the laws of construction or meaning and effect with respect to whether issue, for example, were intended to include adopted persons or not, or to select the law of a jurisdiction which applies its pertermitted heir statute to trusts.

C. The move of a trust to a state with more protective spendthrift laws (or for that matter from a state withno spendthrift provisions to one that had such provisions) would presumably be ineffective to eliminate a beneficiary's existing creditor problem.

XI. DRAFTING CONSIDERATIONS.

A. If a trustee has the power, either under local law, or more probably in the governing instrument, to make discretionary distributions of principal from the trust to a distributee trust created by the trustee for such purpose, as opposed to outright, such a new trust could provide that that trust would be administered in a state other than the trust from which the distribution was coming and/or that that particular distribution trust would be governed by the laws of the jurisdiction other than its place of administration or, better yet, that the trustee of that new distributive trust be given the power to choose the appropriate law governing construction, administration, and meaning and effect. See, Moore, "New Horizons in the Grant and Exercise of Discretionary Powers," 15 U. Miami Inst. on Est. Plan Ch. 6 (1981). Likewise, the grant of inter vivos and testamentary powers of appointment to trust beneficiaries would also open the door and provide a basis for any further trust created by the exercise of the power of appointment to be administered in a particular jurisdiction, to have the laws of any particular jurisdiction apply to it, or, as with the distributive trust, enable the trustee of such an appointive trust to choose what law would govern the trust.

B. Sample Choice of Laws Clause.

1. The validity of each trust hereunder, as well as the validity of the particular provisions of any such trust ("this trust") shall be covered by the laws of whatever state or country having any sufficient connection with such trust will support such validity.

2. To the greatest extent permitted by law, questions of construction relating to this trust, the meaning and effect of this trust's terms, and the administration of this trust shall be governed by (1) the laws of whatever jurisdiction or jurisdictions the trustee may select from time to time to apply to this trust or (2) by one or more provisions of any relevant Uniform Act. The trustee need not select the law of one jurisdiction to govern all such questions; for example, the trustee may designate the law of a particular jurisdiction to govern the meaning and effect of one, several, or all of the trust terms, and may choose that the law of construction or administration of this trust be that of another jurisdiction. Neither the choice of law governing the construction, meaning and effect of any terms of the trust, nor the laws governing the administration of this trust, need be those of the trust's place of administration or the jurisdiction with which this trust has any connection. The grant of such authority to the trustee shall be subject to the limitation that the trustee's choice of governing law shall be based on which law produces the most and greatest benefits to this trust and its beneficiaries, provided, however, such choices of law by the trustee shall not substantially impair the interests of any beneficiary of this trust, or impair, reduce, or eliminate any federal or state tax benefits applicable to this trust or any of its beneficiaries.

3. The trustee may, at any time, and from time to time, move the principal place of administration of this trust to a jurisdiction other than the jurisdiction in which the trust is being administered at such time. After such transfer, the laws of the new place of administration of the trust may, or may not, depending upon the choice of the trustee, apply to questions of meaning and effect, construction or administration of the trust.

4. The trustee shall have no liability in connection with making any of the choices set forth in paragraphs 2 through 3 above and any such choice or choices shall be in the sole discretion of the trustee.

5. If, and to the extent, the trustee chooses not to exercise its discretion to make any or all of the choice of law set forth in paragraphs 1 through 4 above applicable to this trust, the law of this trust's place of administration shall govern any matters as to which the trustee has not made such choice.

6. If by the exercise of any choice of law discretion granted in this trust, the trustee could be deemed to possess a general power of appointment for federal estate or gift tax purposes, such trustee shall have none of the powers granted in paragraphs 2 and 3 above. Instead, such powers shall be exercisable by a trustee who is not a beneficiary of this trust, or if there is no such trustee, the trustee shall appoint a special trustee whose powers shall be limited to those granted in paragraphs 2 and 3 above.

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MALCOLM A. MOORE received his preparatory education at Princeton University and his legal education at Harvard. He is presently a partner in the Seattle law firm of Davis Wright Tremaine. He is past chairman of the Real Property, Probate and Trust Law Section of the American Bar Association. He is Past President of the American College of Trust and Estate Counsel (formerly American College of Probate Counsel) and former Chairman of its Estate and Gift Tax Committee; a member of the American Law Institute and an Adviser for the Restatement of the Law, Second, Property - Donative Transfers; Chair of the Joint Editorial Board for the Uniform Probate Code; a member of the International Academy of Estate and Trust Law and the American College of Tax Counsel. Mr. Moore is also a member of the advisory Committee of the University of Miami's Institute on Estate Planning and a former visiting Adjunct Professor at the University of Miami School of Law. He is a lecturer and a panelist at various national estate planning and tax institutes.

Footnotes:

1 See Scoles, Hay, Borchers and Symeonides "Conflicts of Laws Third Edition" West Group, 2000; Saunders v. Saunders, 796 So.2d 1253, (Fla. App. 2001)); McElreath v. McElreath, 162 Tex. 190, 345 S.W. 2d 722 (Tex. 1961), "The cloak of the situs myth has too long robbed those Trojan trees of light and stunted their growth. Their day in the sun has come." The commentator explains that trees at Troy, under the mandate of the gods, grew no higher than Troy's walls. Weintraub, Commentary on the Conflict of Law, Fourth Edition, Foundation Press 2001, P. 551.
2 93 N.Y.L.J. 2941, June 7, 1935
3 77 Misc. 2d 1077, 354 NYS 2d 561 (1974)
4 N.Y.E.P.T.L. §10-6.6(b)
5 12 Del. C. §35279(1)
6 See Treasury Reg. Section 26.2601-1(b)(1)(v)(B); PLR 9607011; PLR 9547018; PLR 9448024; PLR 9244019
7 25 A 2d 309 (Del. 1942)
8 12 Del. C. §3527(1)
9 See footnote 4, supra
10 Proposed Treasury Reg. Sections 20.2056(b)-5(f)(1), 20.2056(b)-7(d)(1) and 25.2523(e)-1(f)(1)
11 Proposed Treasury Reg. Section 26.2601-1(b)-4(i)(D)(2)
12 Rev. Rul. 54-153, 1954-1 C.B. 185; Rev. Proc. 94-44, 1994-2 C.B. 683; T.A.M. 200014002, PLR 200040022; PLR 199912012; PLR 9801014; PLR 9516051; PLR 7935015.
13 PLRs 20015003 and 9750039

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