Rule 110 Conversion to Trust, Funding Trust

(a) COMMENTARY:

Many individuals establish revocable trusts for their own benefit and intend them to act as will substitutes. Where such a management vehicle has been voluntarily established by the individual before becoming incapacitated, the court may order that assets not already placed in trust be transferred to the trust and thereby remove them from the continued supervision of the court. In some cases, someone other than the individual (e.g., the individual's parent or grandparent) may have established a trust for the individual's benefit. While the court may authorize the transfer of the individual's assets to a trust established by another, before seeking such action, the petitioner should consider and advise the court of the potential tax consequences to the individual and how the proposed transfer affects the individual's estate plan.

Although the court can order the funding directly without appointing a conservator pursuant to HRS §560:5-412, in most cases, a conservator or special conservator should be appointed to facilitate the transfer of the assets into the trust.

Where assets may continue to be received by the individual, such as from an annuity, retirement plan, irrevocable trust, and the like, the court may appoint a permanent conservator whose authority is limited to transferring the assets to the trust as they are received by the protected person.

(b) COMMENTARY:

HRS § 560:5-411(a)(4) grants the court the authority to create revocable or irrevocable trusts for a protected person which may extend beyond the person's life or disability. This rule provides guidance for transferring assets of the conservatorship estate to a newly-created trust. To conform to the individual's estate plan (if any), the trust may benefit those persons during the protected person's life that would normally benefit from the protected person's assets (such as a spouse or reciprocal beneficiary and dependents) and must be distributed or retained in trust at the protected person's death in conformity to the protected person's last will and testament as determined under regular probate proceedings or Rule 93, or in the absence of a valid will, to the individual's heirs at law. Such transfer will be pursuant to the controlling authority, but will not thereby be subject to probate proceedings themselves. Because HRS § 560:5-411(a)(4) and (7) will permit the conservator to create, revoke or amend the protected person's revocable trust or will, with the approval of the court, the conservator may be able to change the beneficiaries of the protected person's estate plan to persons other than those designated in the documents created by the protected person prior to the adjudication of incapacity. Absent extraordinary circumstances, the protected person's existing estate plan should be maintained.

No amendments may be made to the trust without court order, to prevent misapplication of the protected person's funds. The court may order that the trust be under the continued supervision of the court, and may require periodic accountings, or it may in appropriate circumstances release the trust from further supervision and allow it to operate as a regular free-standing trust.

The court will generally not approve a newly-created trust unless the trustee is the nominated personal representative of the protected person's will, another individual who would be entitled by priority to be appointed personal representative of the protected person's estate, or a corporate fiduciary.

Where the court retains jurisdiction over the administration of a newly-created trust, later proceedings relating to the trust will be brought under the original C. No. or CG. No., and not under a T. No., so that the court will have all relevant information as to the history of the trust in one file.