The term "under agreement dated" (UAD) is typically used in connection with a living trust. It appears in trust instruments—the trust's formation documents—to establish that an irrevocable living trust has been formed. Financial and other institutions rely upon the UAD designation for tax and other purposes.
Revocable vs. Irrevocable Living Trusts
A revocable trust is one that can be changed at any time by the grantor, the individual who formed it. The grantor commonly serves as the trustee of their own revocable trust. They retain control of the assets they've funded and placed into the trust, and they reserve the right to change the trust's terms at any time, provided that they're still mentally sound.
The grantor of a revocable trust can revoke or dissolve the trust and take their property back if they decide the trust no longer suits their purposes.
The grantor must step aside after they've formed and funded an irrevocable trust. Someone else must serve as the trustee, either an individual or a financial institution. The grantor does reserve the right to name the trustee in the trust's formation documents.
The grantor of an irrevocable trust can't take their property back after it's been transferred into the trust's ownership. They relinquish it for all time when they fund it into the trust. They can’t revoke the trust or change any of its terms after they've formed it.
Why would anyone choose such a trust? Irrevocable trusts offer many tax and asset protection benefits that revocable trusts don’t, although both types of trusts do avoid probate. Assets held in an irrevocable trust don't contribute to the grantor's estate for estate tax purposes, because they're technically no longer owned by that individual.
The UAD Designation Identifies an Irrevocable Trust
A trust is designated as an irrevocable trust when the term “UAD,” or sometimes “U/A,” appears in the trust instrument. The designation tells an institution that the grantor and the trustee are two separate individuals, and that the trustee controls the assets that have been placed in the trust.
The trust instrument might read, “John Doe, Trustee of the Jane Doe Living Trust UAD 02/17/2021.” This tells a financial institution or other entity four things:
- John is the trustee.
- Jane is the grantor.
- Jane does not control the trust.
- The trust was formed by an instrument dated February 17, 2021.
It means just the opposite when the term “U/D/T” or “UDT” appears in a trust instrument. UDT stands for “under declaration of trust," and this indicates that the grantor and the trustee are the same individual. The grantor maintains control over the assets they've placed into the trust, and they can only do this if the trust is revocable.
A Word About Testamentary Trusts
A testamentary trust is something else entirely. It's created after the grantor has died, not during their lifetime, so it's an irrevocable trust by default. The grantor can't change it because they're deceased.
The terms and beneficiaries of a testamentary trust are based on instructions contained in the decedent's will, so a testamentary trust always carries a UAD designation.
The grantor can change or revoke a testamentary trust at any point by simply changing their will, but the trust doesn't go into effect until their death. They can no longer revoke or amend it at that point. The grantor and the trustee must be two separate individuals because the grantor is deceased by the time the trust is formed.
This type of trust is typically created by the executor of the decedent's estate as part of the probate process, according to the wishes of the decedent as contained in their will. The trust instrument should cite the name of the deceased grantor, the name of their nominated trustee, and the state in which it was created under the terms of the decedent's will. It should state that the grantor is deceased.
NOTE: The information contained in this article is not intended as legal advice, and it isn't a substitute for legal advice. If you’re considering forming a trust, please consult with an estate planning attorney who can advise you regarding the pros and cons of different types of trusts and how they might meet your needs if you're considering forming one.