Duty to inform and report
• Except to the extent the terms of the trust provide otherwise, a trustee shall keep the qualified beneficiaries of the trust reasonably informed about the administration of the trust and of the material facts necessary for them to protect their interests. Unless unreasonable under the circumstances, and unless otherwise provided by the terms of the trust a trustee shall promptly respond to a qualified beneficiary’s request for information related to the administration of the trust.
• Except to the extent the terms of the trust provide otherwise, a trustee:
• upon request of a qualified beneficiary, shall promptly furnish to the beneficiary a copy of the portions of the trust instrument which describe or affect the beneficiary’s interest;
• within 60 days after accepting a trusteeship, shall notify the qualified beneficiaries of the acceptance and of the trustee’s name, address, and telephone number;
• within 60 days after the date the trustee acquires knowledge of the creation of an irrevocable trust, or the date the trustee acquires knowledge that a formerly revocable trust has become irrevocable, whether by the death of the settler or otherwise, shall notify the qualified beneficiaries of the trust’s existence, of the identity of the settler or settlers, of the right to request a copy of the trust instrument, and of the right to a trustee’s report as provided in Subsection (3); and
• shall notify the qualified beneficiaries in advance of any change in the method or rate of the trustee’s compensation.
• A trustee shall send to the qualified beneficiaries who request it, at least annually and at the termination of the trust, a report of the trust property, liabilities, receipts, and disbursements, including the amount of the trustee’s compensation or a fee schedule or other writing showing how the trustee’s compensation was determined, a listing of the trust assets and, if feasible, their respective market values. Upon a vacancy in a trusteeship, unless a co-trustee remains in office, a report must be sent to the qualified beneficiaries by the former trustee, unless the terms of the trust provide otherwise. A personal representative, conservator, or guardian may send the qualified beneficiaries a report on behalf of a deceased or incapacitated trustee.
• A qualified beneficiary may waive the right to a trustee’s report or other information otherwise required to be furnished under this section. A beneficiary, with respect to future reports and other information, may withdraw a waiver previously given.
What Is a Trustee?
A trustee is a person or firm that holds and administers property or assets for the benefit of a third party. A trustee may be appointed for a wide variety of purposes, such as in the case of bankruptcy, for a charity, for a trust fund, or for certain types of retirement plans or pensions. Trustees are trusted to make decisions in the beneficiary’s best interests and often have a fiduciary responsibility to the trust beneficiaries. The trustee acts as the legal owner of trust assets, and is responsible for handling any of the assets held in trust, tax filings for the trust, and distributing the assets according to the terms of the trust. Both roles involve duties that are legally required.
The Trustee’s Duty to Inform and Report
Given the technical complexities of irrevocable trust administration, including the administration of irrevocable life insurance trusts (“ILITs”), trust litigation over breaches of fiduciary duty continues to rise. A trustee’s compliance with the duty to inform and report can be critical to avoiding liability. Most states impose a fiduciary duty on trustees of irrevocable trusts to inform and report to the beneficiaries regarding the trust accounts and administrative. Depending on the trust agreement and the applicable state law, this duty may range from mandating that the trustee notify beneficiaries of a trust’s existence and provide annual reports, to leaving all such disclosure and reporting activities in the trustee’s sole discretion.
These variations in state laws and increasingly complex trust agreements can present unique compliance challenges and potential liability exposure, particularly for non-professional trustees who lack the necessary experience and administrative infrastructure. A trustee’s duty to inform and report protects the interests of trust beneficiaries and can limit the trustee’s liability. This duty applies to trustees of all irrevocable trusts, including ILITs, even if the trust creator (grantor) is still living. As there is no uniform set of rules for compliance, however, each trustee must review the applicable state law, the trust agreement, and the trust’s circumstances to determine the specific reporting obligations. Due to legal nuances in understanding state statutes and trust agreements, non-professional trustees should consult with legal counsel to determine the scope of, and ensure compliance with, their disclosure obligations. Even when not required, trustees also may want to consider non-mandatory disclosures to beneficiaries to take advantage of available liability and other protections under state law.
Holding the Trustee Accountable
The law imposes certain informational requirements on trustees. Trustees have a duty generally to keep beneficiaries fully apprised regarding the trust’s activities. For example, a trustee must send a notice to all trust beneficiaries within 60 days after the settler of a revocable trust dies, informing the beneficiaries that they have a right to receive a copy of the trust instrument. In addition, the trustee must provide an annual accounting to the beneficiaries on request, showing the trust assets and liabilities, and the receipts and disbursements made during the accounting period. While there is no express requirement that a trustee provide an inventory of the trust assets to the beneficiaries within a specific period of time, the trustee should certainly do so in a timely manner. A trustee’s failure to keep the beneficiaries informed constitutes a breach of the trustee’s fiduciary duties for which the trustee can be removed, with court approval.
Reasons to Inform & Report For Compliance
State law may require a trustee to disclose the existence of a trust and other information to the beneficiaries, as well as provide written accounts of the trust’s assets, liabilities, receipts, and disbursements on a periodic basis and/or upon the occurrence of certain events (such as a change in trustee).
Generally, the duty to inform and report serves numerous practical considerations for both trustees and beneficiaries, which, depending on state law, include:
• Providing trust beneficiaries with sufficient information to enforce the trustee’s duties, preserve the trust, and protect their beneficial interests;
• Providing trustees with protection and closure with regard to specific transactions or for a certain time frame, particularly if no court approval is sought for the transaction or accounting;
• For changes in trustees, clearly delineating the actions and decisions of the prior trustee and providing full knowledge to the new trustee of the trust’s assets and activities;
• Evidencing good faith in trust administration and management (often, individual trustees will not be liable for breaches of fiduciary duty if they acted in good faith); and
• Starting the statute of limitations to run for actions again the trustee for breaches of fiduciary duty or other causes related to the matters disclosed or accounted for.
No Single Set of Rules
There is no single set of rules governing the duty to inform and report. The scope of the duty has developed over time, state-by-state, based on case law and the Uniform Trust Code (“UTC”),[i] a model code used by many states to develop their specific trust laws.[ii] Thus, state rules vary considerably and include both mandatory provisions and default rules, which a trust agreement can modify or delete. Also the specific requirements for disclosure and reporting, including the forms to use and the protections available, will depend on the trust’s terms, the interest, age, and capacity of a beneficiary, and the size, type, and complexity of trust assets or transactions.
Despite variations, the reporting and disclosure rules generally fall into several broad categories. Accordingly, using the UTC as a guide, many trustees could find themselves subject to one or more of the following obligations:
• Keep Beneficiaries Reasonably Informed: The trustee must actively report to “qualified” beneficiaries regarding the trust’s administration and material facts necessary for them to protect their interests. Generally, “qualified beneficiaries” are current beneficiaries, those next in line as beneficiaries after the current beneficiaries’ interests terminate, and anyone entitled to income or principal if the trust terminates.
• Provide Periodic Reports (Accounts): The trustee must send to current beneficiaries and permissible beneficiaries of trust income or principal, and to other beneficiaries who request it, a written report that includes the trust property, liabilities, receipts, and disbursements, the source and amount of the trustee’s compensation, and a list of the trust assets and, if feasible, their market values. The reports must be sent at least annually and at trust termination.
• Respond to Beneficiary Requests for Information: The trustee must promptly respond to any beneficiary’s request for information related to the trust’s administration, unless unreasonable under the circumstances and furnish a copy of the trust agreement to any beneficiary who requests a copy. For these purposes, a “beneficiary” is essentially anyone with any interest in the trust, whether present, future, contingent, or vested.
• Notify Beneficiaries of Trust’s Creation and Related Information: Within 60 days after a trustee learns of the creation of an irrevocable trust or a change in a revocable trust to an irrevocable trust, the trustee must notify the qualified beneficiaries of the trust’s existence, the identity of the grantor(s), and the beneficiaries’ right to request a copy of the trust instrument and to receive a trustee’s report.
• Notify Beneficiaries of Acceptance of Trusteeship: Within 60 days after accepting a trusteeship, the trustee must notify qualified beneficiaries of the acceptance and trustee’s name, address, and telephone number.
• Notify of Changes in Trustee’s Compensation: The trustee must notify qualified beneficiaries in advance of any change in the method or rate of the trustee’s compensation.
Trust Limits on Reporting Obligations
Despite the benefits offered by making trust disclosures, many grantors wish to keep trust information confidential, due to privacy concerns and the worry that the disclosure of information to a beneficiary may create disincentives for him or her to attain an education, obtain employment, or achieve other social and professional milestones. To address these concerns, the trust disclosure laws of most states consist primarily of default rules, which a grantor may waive or modify in the trust agreement. For example, under the UTC, the trust agreement can modify or waive the duty to (1) respond to a beneficiary’s request for a copy of the trust, (2) provide annual reports to qualified beneficiaries, and (3) advise a beneficiary under age 25 of the trust’s existence, the trustee’s identity, and the beneficiary’s right to request trustee reports. The UTC, however, makes mandatory the duty to respond to a qualified beneficiary’s request for trustee reports and other information reasonably related to the trust’s administration (with an option to make this mandatory only for beneficiaries who have attained age 25).
Other “optional” provisions the UTC would make mandatory include the duty to notify qualified beneficiaries of the trust’s existence, the trustee’s identity, and their right to request trustee reports (can be made mandatory only for beneficiaries age 25+), as well as the duty to notify beneficiaries of the acceptance of a trusteeship (again, can be mandatory only for beneficiaries age 25+). However, even among states that have adopted the UTC, there has been a significant lack of uniformity regarding enactment of the UTC’s mandatory disclosure requirements. Some states permit “quiet” or “silent” trusts, which allow the grantor to waive all or almost all disclosures to the beneficiaries, perpetually or for some period of time (such as until after the grantor passes, or a beneficiary attains a desired age). Other states allow the grantor to designate a “designated representative”, surrogate, or alternate person to receive certain or all mandatory or other disclosures on behalf of the trust beneficiaries, which attempts to balance the need for disclosure and the desire for privacy.
Utah Probate Code Lawyer Free Consultation
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