WA Trust Law modernization will benefit financial-sector and protect consumers

Washington State modernizes trust laws to allow third-party delegates while protecting consumers’ best interests

Olympia – The Washington State Department of Financial Institutions (DFI) is pleased to announce that a new law goes into effect today that will benefit Washington financial industry businesses and consumers where trusts are concerned.

“By placing fiduciary responsibility with professionals who really manage assets,” DFI Director Scott Jarvis explained, “we believe more attorneys and financial institutions, and also lay family members, will want to act as trustees, confident in the knowledge that third-party investment advisers and asset managers – wherever they are in the world – will be more accountable and subject to Washington court jurisdiction. Because of the modernizations we have made to the trust laws over the past two years, Washington State’s favorable income tax treatment, and the innovative Trust and Estates Dispute Resolution Act (TEDRA) — allowing efficient and speedy resolution of trust and estates disputes — we believe that individuals, banks, trust companies, and wealth management firms will find Washington State a most attractive jurisdiction for the administering of trusts.”

This new law is designed to promote economic development by:

• Benefiting trustees, settlors, and beneficiaries of all trust estates (large and small),

• Making Washington State trust charters more attractive to both out-of-state and international firms which may be interested in locating their businesses here,

• Giving local wealth management services a reason to stay here, and

• Making settlors and beneficiaries (trust consumers) want to have their wealth managed here.

This new law allows and further clarifies that trustees may appoint a third-party delegate, something particularly useful to all trustees in order to meet the needs of consumers in areas where a trustee may not have the expertise necessary, while consumers are assured that the trustee has prudently chosen the third-party delegate.

In April, Governor Jay Inslee signed into law the second of two bipartisan bills in as many years, which together now places Washington State among the most attractive jurisdictions for wealth management firms and trust administration. In addition, these two bills preserve and enhance protections for the creators of trusts and their beneficiaries, including assuring more transparent and effective regulation of trust service companies operating in Washington State.

The first of these bills, the Trust Institutions Modernization Act of 2014 (SB 6135), which went into effect Jan. 5, 2015, makes it more transparent who may operate as a non-bank trust company or fiduciary services company in Washington State, clarifying and enhancing the role of the Division of Banks of the Washington State Department of Financial Institutions (“DFI”) in the regulation of such services.

The second of these bills, which takes effect today, July 24, 2015, is the Washington Directed Trusts Act of 2015 & Other Trust Law Modernization Amendments (SB 5302). It benefits all trusts in Washington State and does three things:

1. Modernizes the prudent investor rule to conform to the most progressive standard for present-day wealth management;

2. Further modernizes the rights and obligations related to delegation of duties by trustees to third-party professional advisers and asset managers; and

3. Establishes an opt-in set of rules for the creation and administration of so-called directed trusts, which is an innovation where settlors (the creators-founders of trusts) can limit the burden of trustees by investing primary legal responsibility in third-party trust advisers and asset managers who increasingly do the vast majority of the real work of trust administration.

The impetus for both bills began with recommendations from a Financial Services Cluster Study, presented to the Senate Financial Institutions & Insurance Committee by The Economic Development Council of Seattle & King County (Enterprise Seattle) in the fall of 2012. Participants in the study included senior managers of Puget Sound’s financial community, prominent business attorneys, state legislators, and DFI.

A key vision of Enterprise Seattle’s Financial Services Cluster Study, is the idea that the Greater Seattle-Puget Sound Region – with its quality of life, sophistication in Internet technology, core competencies in financial services, and concentration of wealth and philanthropy – has an achievable prospect of becoming an alternative global financial services hub that could legitimately rival San Francisco, Singapore, and Hong Kong within the Pacific Rim community.

Among its many recommendations, the Financial Services Cluster Study suggests optimization of Washington State’s trust regulation and trust laws that would help Washington reach that key vision.

DFI worked with a committee of its banking and trust company stakeholders and their attorneys to make legislative recommendations resulting in the Trust Institutions Modernization Act of 2014 (SB 6135). Recognizing that there were important recommendations still to be implemented, DFI also reached out to and worked with the Probate & Trust Council of the Real Property, Probate & Trust Section of WSBA to refine and draft the remaining legislative recommendations that became this year’s Washington Directed Trusts Act of 2015 & Other Trust Law Modernization Amendments (SB 5302).

“We are very encouraged to be working with our banks, trust companies, and with the Washington State Bar Association, to get these bills [SB 6135 and SB 5302] in place and working for the state’s economy and the public’s protection and benefit,” Director Jarvis said. “The passage of these bills comes at a time when, as the financial press has recently reported, we will see over the next three decades the greatest transfer of wealth in history – much of which will be managed by fiduciaries for the benefit of others.

“We believe that the Legislature and the Governor have been proactive in preparing Washington State for the future and in a way that will help make the state competitive in the financial services sector.”

“When the word gets out, these bills will help to attract out-of-state and international wealth management firms to locate here, existing firms to stay here, and settlors and beneficiaries – that is, trust consumers – to want their wealth managed here,” DFI Division of Banks Director Richard M. Riccobono added. “Also, by working with the Washington State Bar Association, we were able to make this legislation work for all trustees and beneficiaries, not just the banks and trust companies DFI regulates.”

Additional information, forms, application information and other trust company information can be found at http://www.dfi.wa.gov/trusts.