Effective August 1, 2011, a number of new changes went into effect changing Delaware trust law.  While the amendments make a lot of changes to the Delaware trust laws, below are some of the changes that are likely to have the biggest impact on litigation concerning Delaware trusts.

Wrongdoing: The amendments have added a definition of “wrongdoing” to clarify its meaning within the definition of “wilful misconduct.”  For purposes of Delaware trust law, “wilful misconduct,” means “intentional wrongdoing, not mere negligence, gross negligence or recklessness.”  Apparently, there was some confusion over the meaning of “wrongdoing,” and, therefore, “wrongdoing” is now defined as “malicious conduct or conduct designed to defraud or seek an unconscionable advantage.”  To the extent that previously there was a benign interpretation of “wrongdoing,” the Delaware Code is now clear that the threshold for a fiduciary to commit “intentional wrongdoing” is quite high.

Notice: In a change that simply makes life easier for fiduciaries, Delaware law now provides a statutorily sufficient method of providing notice to beneficiaries in the absence of a contrary provision in the trust instrument.  Notice can be given: (1)  by regular U.S. Mail or commercial carrier to the mailing address reasonably determined to be such person’s address, (2) by facsimile telecommunication to a number at which such person last consented to receive notice, (3) by electronic mail to an electronic mail address at which such person last consented to receive notice, (4) by a posting on an electronic network, provided notice of such posting is delivered to such person, (5) by any other form of electronic transmission as to which such person last consented to receive notice, (6) by regular U.S. Mail or commercial carrier to the address at which such person last consented to receive notice, or (7) by such other manner reasonably suitable under the circumstances and likely to result in receipt.

The notice provision also provides that a trustee does not have a duty to confirm the reliability of an approved address, and, without  creating such a duty, a trustee may withhold notice, including to an approved address, while it exercises reasonable diligence to obtain confirmation that it has a reliable address for such person.

The amendment provides that a person entitled to receive notice may waive in writing the right to receive notice of a trust or other communications pertaining to a trust, and a beneficiary may also rescind a waiver previously given.  A trustee may rely on the representations of a predecessor trustee or a co-trustee pertaining to a waiver or rescission of a waiver.

This notice provision does not apply to notice that must be given in judicial proceedings, but it certainly makes providing notice easier especially with the ability to provide notice via email or “electronic network” (which may include through social networking sites).

Virtual Representation:  The virtual representation statute has been amended to provide: “In the case of a trust having a minor or incapacitated beneficiary who may not be represented by another pursuant to subsection (a) or subsection (b) of this section, the surviving and competent parent or parents or custodial parent (in cases where one parent has sole custody of the beneficiary), or guardian of the property of the beneficiary may represent and bind the beneficiary for purposes of any judicial proceeding or nonjudicial matter pertaining to the trust; provided that, in the case of a beneficiary represented by one or both parents, there is no material conflict of interest between the minor or incapacitated beneficiary and either of such beneficiary’s parents with respect to the particular question or dispute.”

This new language seems to suggest that if a minor or incapacitated beneficiary has two “surviving and competent” parents, both are required to represent the beneficiary unless one parent has “sole custody of the beneficiary.”  If this is the case, then this just adds more people to the mix and increases potential conflict where a beneficiary has two surviving separated or divorced parents but neither has sole custody of the beneficiary.

Releases by Incapacitated Beneficiary:  The release provision has been amended to be more consistent with the Uniform Trust Code and permit a guardian, conservator, or some other authorized representative to execute a release on the incapacitated beneficiary’s behalf.

Unproductive Trust Property: The 2011 amendments impose a new duty on trustees with respect to non-income producing trust property.  Prior to the amendment, if trust property did not provide reasonable income to an income beneficiary and the trustee could not make allocations from principal to income to provide beneficial enjoyment to the income beneficiary, then the income beneficiary “may require”   the trustee to make property productive of income, convert property within a reasonable time, or exercise the power to allocate from principal to income.

With the new amendment, “[u]pon request of the income beneficiary” the trustee must make a determination whether the trust property is providing the income beneficiary with reasonable income or use of the trust property.  If the trustee makes that determination, then the trustee “shall” make the property productive of income, convert such property within a reasonable time, or exercise the power to allocate from principal to income as deemed appropriate in the trustee’s discretion.

So, a disgruntled beneficiary gets to make a request to the trustee to determine whether this disgruntled beneficiary is receiving enough income from the trust.  The trustee is then tasked with determining whether the disgruntled beneficiary is actually receiving enough income from the trust.  If the trustee decides that the disgruntled beneficiary is not receiving enough income, then it must exercise its discretion to address the shortcoming.  Seems like an area ripe for litigation.