Trusts are governed by state law. Over thirty states have adopted some version of the Uniform Trust Code (UTC) to standardize trust administration, trustee duties, and beneficiary rights. For instance, California regulates trusts under Division 9 of the California Probate Code.
Key regulatory frameworks include:
Trustees are governed by the Uniform Fiduciary Income And Principal Act (UFIPA) (or its predecessor, the Uniform Principal and Income Act), which establishes the Prudent Investor Rule. This mandates that a trustee invest and manage trust assets as a prudent investor would, considering the trust’s terms, distribution requirements, and risk parameters.
At the federal level, Subchapter J of the Internal Revenue Code ( IRC §§641–692) governs the income taxation of estates, trusts, and beneficiaries. Subchapter J determines whether trust income is taxed to the grantor (grantor trust rules under IRC §§671–679), to the trust itself (non-grantor trust rules), or to the beneficiaries.
If a trust is named as a beneficiary of an IRA or 401(k), it must qualify as a “see-through” trust under Treasury Regulations to use the life expectancy of the trust’s beneficiaries for calculating Required Minimum Distributions (RMDs under IRC §401(a)(9)). Failure to meet these requirements forces the retirement account to be liquidated within five years (or ten years under the SECURE Act, depending on the status of the beneficiary).