California Replaces a Trust Investment Law

What You Need to Know

The Uniform Law Commission approved the UFIPA model in 2018.
California has become the seventh state to enact the model.
Banking groups and groups representing trust and estate lawyers have supported UFIPA adoption.

California has adopted a new law that could affect any estate planning arrangements in the state, or any other client arrangement in the state that involves the use of investments held inside a trust.

Gov. Gavin Newsom last week signed SB 522, the Uniform Fiduciary Income and Principal Act  (UFIPA) bill.

The Uniform Law Commission, the body that developed the UFIPA model, says it will give trustees more flexibility to shift between income and principal when managing the payouts to trust beneficiaries.

The act also makes it easier for trustees to convert a traditional trust into a unitrust, which can give trustees more help with using a “total return investing” strategy, or effort to maximize growth in asset value as well as income, according to an analysis by Ronald Aucutt, a fellow of the American College of Trust and Estate Council.

California is the highest-population state in the country, with 39 million residents. It has now become the seventh state to enact the UFIPA model, and its support could speed up UFIPA adoption by other states.

What It Means

Any financial professionals with clients who use trusts, including trusts incorporating life insurance policies or annuity contracts, should ask their trust and estate law advisors for help with understanding the possible implication of UFIPA adoption.

UFIPA History

The Uniform Law Commission is a body that helps states draft laws. It developed the old Uniform Prudent Investor Act in 1931 and adopted updates in 1962 and 1997, according to analysts with the California Assembly Judiciary Committee. The 1997 update changed the name of the act to the Revised Uniform Principal and Income Act.

The original model was supposed to help states ensure that the people responsible for overseeing the assets inside trusts would invest the assets in a prudent way.

Dennis Sandoval, an estate planning and trust lawyer based in California, reported in 2022 that, as of that year, the only states that had not adopted laws based on the Uniform Principal and Income Act model were Georgia, Illinois and Louisiana.