How Does a UAD Designation Identify a Trust?
The term under agreement dated (UAD) is typically used in connection with a living trust. It also 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 his own revocable trust. He retains control of the assets he’s funded and placed into the trust, and he reserves the right to change the trust's terms at any time, provided that he's mentally sound and still living. He can revoke or dissolve the trust and take his property back if he decides that the trust no longer suits his purposes.
The grantor must step aside after she's formed and funded an irrevocable trust. Someone else must serve as a trustee, either an individual or perhaps a financial institution. The grantor does reserve the right to name the trustee in the trust's formation documents.
The grantor of an irrevocable cannot take her property back. She relinquishes it forever when she transfers it into the trust's ownership. She can’t revoke the trust or change any of its terms after she's 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.
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 02/17/2018.” 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, 2018.
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 people. The grantor maintains control over the assets he has placed into the trust, and he 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 his lifetime. The grantor can change or revoke a testamentary trust at any point by simply changing his will, but the trust doesn't go into effect until his death, at which point he can no longer revoke or amend it. The grantor and the trustee must be two separate individuals because the grantor is deceased by the time the trust is formed.
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.
This type of trust is typically created by the executor of the decedent's estate according to the wishes of the decedent as contained in her will. The trust instrument should cite the name of the deceased grantor, the name of her 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 now deceased.
The information contained in this article is not intended as legal advice and it is not 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.